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Author: 


Title: 


Service  at  cost  for  street 
railways 

Place: 

New  Yorl< 

Date: 

[1921] 


^i'g>2^09-/l 


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Service  at  cost  for  street  railways, 


"*•».. 


(      Columbia  Wlnihtxiitp 

tn  ttie  Cttp  of  ^to  l^orfe 


LIBRARY 


d^tliool  Of  ^nuintM 

of 

9camntamp 


J 


1 1 


SUPPLEMENT  TO  THE 

National 

Muaicipal 
Review 


Vol.  X,  No.  2 


February,  1921 


SERVICE  AT  COST 

FOR 

STREET  RAILWAYS 

A  SYMPOSIUM 


I 


Four  Papers  by  Experienced  Public  Officials 

Answering  the  Question,  "Is  Service-at-Cost 

a  Panacea  or  Nostrum?** 


PUBUSHED  BY  THE 


NATIONAL  MUNICIPAL  LEAGUE 

RAILROAD  SQUARE,  CONCORD,  N.  H. 

EDITORIAL  OFFICE,  261  BROADWAY, 

NEW  YORK,  N.  Y. 


Watered  as  second-cUu  matter  April  15, 1914,  at  the  post-office  at  Concord,  New  Hampshire,  under  the  Act  of  Aocust  14, 


ItU 


I  s''a       Inir  m 


\ 


SERVICE-AT-COST-PANACEA  OR  NOSTRUM? 

CONTENTS 

^  Ill 

Railway  Co, 

126 

134 
Service  at  Cost  Versv.  ^x^^pal  0™ship  ..^.^.^^^^^^^^ 

Charles  M.  Fassett,  Former  Mayor  oj   bpomne,   i^luj, 
American  City  Consultants. 


»«— 


BOSTON— THE  PUBLIC  TRUSTEE  PLAN 

BY  JAMES  F.  JACKSON 
Chairman,  Board  of  Trustees,  Boston  Elevated  Railtoay 


Chapter  159  of  the  acts  of  the  legis- 
lature of  Massachusetts  of  1918,  known 
as  the  Public  Control  Act,  went  into 
effect  on  the  first  day  of  July  in  that 
year.  It  arranged  what  is  practically 
a  lease  of  the  Boston  Elevated  Railway 
for  the  term  of  ten  years  to  the  state 
of  Massachusetts  representing  for  that 
purpose  Boston  and  certain  suburban 
cities  and  towns  which  the  railway 
serves.  Five  trustees  to  be  appointed 
by  the  governor  of  the  state  and  to 
hold  office  for  the  ten  years  of  the  lease 
were  given  absolute  control  over  the 
management  and  operation  of  the  rail- 
way. The  rental  was  to  be  paid  in 
fixed  dividends  upon  outstanding  stock 
at  5  per  cent  for  the  first  two  years,  at 
5^  per  cent  for  the  next  two  years  and 
at  6  per  cent  for  the  balance  of  the 
term. 

This  act  grew  out  of  the  vain  strug- 
gle under  private  management  to  fur- 
nish service  upon  a  five-cent  fare,  a 
struggle  that  even  under  pre-war  prices 
and  conditions  had  grown  more  and 
more  desperate  until  the  payment  of 
dividends  was  suspended  and  the  effort 
to  maintain  the  property  practically 
abandoned.  The  problem  was  no 
longer  a  question  of  profits  for  stock- 
holders but  of  the  existence  of  the  serv- 
ice upon  a  system  prostrated  by  lack 
of  capital  and  revenue. 

The  legislature  could  have  met  the 
situation  in  any  one  of  four  ways.  It 
could  have  allowed  the  railway  to  go 
into  the  hands  of  a  receiver  with  the 
consequent  expense,  delay  and  uncer- 
tainties; or  it  could  come  to  the  aid  of 
private  management  with  relief  from 
burdens  and  with  guarantee  of  credit; 


111 


or  it  could  commit  itself  completely  to 
the  theory  of  pubUc  ownership;  or  it 
could  take  the  less  radical  step  of  an 
e3q>eriment  with  pubUc  control  of  the 
railway  under  temporary  lease  from 
its  owners.  It  chose  the  last  of  these 
courses. 

WHY  THE  TRUSTEE  PLAN  WAS 
ADOPTED 

Three  factors  in  the  situation  un- 
doubtedly had  influence  in  bringing 
about  this  decision. 

The  first  was  the  fact  that  the  use- 
fulness of  the  street  railway  had  come 
to  be  fully  understood.  It  was  appre- 
ciated as  never  before  that  the  street 
car  is  not  alone  the  poor  man's  carriage 
but  that  of  the  pubhc  official,  the  man 
of  business,  the  professional  man- 
directly  or  indirectly  the  carriage  on 
which  everyone  rehes  and  for  which 
no  jitney  or  other  kind  of  electric  om- 
nibus can  be  substituted.  It  must  be 
preserved. 

The  second  was  the  fact  that  this 
metropoUtan  railway  represented  an 
honest  investment  under  a  pubHe 
supervision  that  had  prevented  exces- 
sive issue  of  stock  or  bonds  and  that, 
therefore,  there  was  no  call  for  reor- 
ganization to  ehminate  watered  stock. 
The  third  was  the  fact  that  the  new 
capital  which  was  indispensable  to 
sustain  this  service  must  be  obtained 
by  buying  it  at  market  prices  as  other 
necessities  are  bought,  in  other  words 
that  investment  must  have  its  secure 
return. 

To  the  legislative  mind  the  problem 
for  experience  to  solve  was  whether  or 


NATIONAL  MUNICIPAL  REVIEW  SUPPLEMENT         [Feb. 


1921] 


112 

not  a  public  management  coidd  be 
efficient,  that  is  conducted  without 
waste  and  without  loss  of  ambition  or 
pride  in  achievement.  It  was  thought 
that  a  trial  was  worth  while. 

The  basic  plan  for  this  experiment 
was  that  which  I  believe  is  the  best  for 
any  street  railway  enterprise— a  serv- 
ice at  cost— meaning  of  course  proper 
or  necessary  cost. 

In  assuming  their  duties  the  trustees 
took   over    a    railway    that    covered 
535.326  miles  of  track,  475.717  miles  of 
it  surface  track,  30.080  miles  in  sub- 
ways and  29.529  miles  upon  elevated 
structure.    Much  of  the  surface  track 
was  of  hght  construction  and  badly 
worn,  a  large  part  of  the  roUing  stock 
in  poor  repair  and  of  obsolete  type. 
The  power  plant  was  in  process  of 
development  and  repair  shops  and  car 
bams  utterly  inadequate.    The  total 
investment  in  this  railway  system  was 
$93,612,211.21    represented    by    out- 
standing stock  and  bonds   in   about 
equal  proportion.     The  aggregate  cost 
of  the  subways  and  tunnels  under  lease 
to  this  company  was  $35,033,506.11. 
The  Cambridge  subway  was  then  in- 
cluded in  the  corporate  property  at  its 
cost  of  $7,868,000  but  last  winter  this 
subway  was  transferred  to  the  state 
practically  at  cost  and  leased  to  the 
company  as  the  other  subways  had 
been  leased  at  construction. 


MORE  REVENUE  NEEDED 

The  act  directed  the  trustees  to  rein- 
state the  railway  in  good  operating 
condition.  To  do  this  additional  cap- 
ital and  additional  revenue  must  be 
immediately  obtained.  As  a  measure 
for  providing  a  first  installment  of  the 
needed  capital  the  act  authorized  an 
issue  of  preferred  stock  to  the  amount 
of  $2,000,000.  To  secure  operatmg 
revenue  the  act  directed  the  trustees  to 
put  in  force  fares  that  would  make  the 


service  self-supporting  and  provided 
that  meanwhile  deficits  incurred  should 
be  met  from  taxation  in  the  cities  and 
towns  served  by  the  railway,  the 
amounts  so  advanced  to  be  repaid 
whenever  operating  revenue  should 
exceed  operating  cost. 

The  new  capital  was  inmiediately 
used  in  part  payment  for  250  modern 
cars.    Successive  advances  in  fare  fol- 
lowed.   A  seven-cent  fare  was  put  in 
effect  in  August  and  in  October  gave 
way  to  an  eight-cent  fare  which  after 
a  trial  of  seven  months  also  proved  in- 
adequate.    At  the  close  of  the  year 
ending  on  June  30,  1919,  receipts  had 
failed  to  meet  expenses  by  approxi- 
mately   five    miUion    dollars    which 
amount  was  raised  by  taxation  in  the 
cities  and  towns  served. 

The  ten-cent  fare  now  in  force  was 
introduced  in  July,  1919.   Losses  under 
it  continued  in  decreasing  amount  for 
two  months,  but  in  September  this  fare 
began  to  produce  revenue  sufficient  to 
meet  expenses  and  eventually  to  absorb 
the  earlier  deficits  so  that  on  June  30, 
1920,  the  trustees  were  able  to  report 
that  operating  receipts  for  the  year  had 
met  operating  costs  including  all  fixed 
charges  and  a  reserve  to  depreciation. 
In  summer  months  the  expense  for 
street  work  is  always  large  and  receipts 
are    always    smaller    than    in    other 
months,  traffic  falUng  below  average. 
These  conditions  prevailed  as  usual  in 
July,  August  and  September  of  this 
year.    The  expected  operating  deficit 
for   those   months   was   realized   but 
unless  some  extraordinary  event  inter- 
venes  this  will  be  readily  absorbed 
before  next  July  leaving  at  the  close  of 
this  year  as  at  the  end  of  last  year  no 

deficit. 

There  is  a  natural  interest  about  tne 
effect  of  higher  fares  upon  traffic.  Our 
experience  has  shown  that  there  has 
been  a  gain  in  total  revenue  but  a  loss 
in  the  number  of  passengers  carried. 


BOSTON— THE  PUBLIC  TRUSTEE  PLAN 


113 


Under  the  ten-cent  fare  this  loss  at 
first  amounted  to  12  per  cent  of  the 
traffic  but  gradually  diminished  to  10 
per  cent.  To  use  figures  the  number 
of  passengers  carried  under  a  five-cent 
fare  for  the  month  of  October,  1917, 
was  32,854,047.  Under  the  ten-cent 
fare  in  October,  1920,  the  number  was 
29,382,315. 

Had  there  been  during  this  time  no 
unusually  large  increase  in  operating 
costs  over  those  prevailing  in  the  days 
of  private  management,  receipts  would 
have  met  expenditures  at  a  fare  con- 
siderably below  ten  cents.    As  every- 
one knows,  however,  prices  had  risen 
upon  every  hand  at  a  tremendous  pace. 
This    was    featured    most    strikingly 
through  advances  in  wages.    The  av- 
erage number  of  employes  upon  this 
railway  is  10,000.     In  the  spring  of 
1918  an  advance  in  wages  took  place 
the  effect  of  which  was  felt  throughout 
the  first  year  of  public  control.    In  that 
year  a  further  advance  took  place  and 
last  year  a  third.     The  aggregate  in- 
crease in  operating  cost  on  this  account 
has   been   approximately   $7,000,000. 
To-day  more  than  half  of  every  fare 
goes  to  compensation  of  employes. 

The  higher  cost  of  coal  has  been  an- 
other leading  feature  of  increases  in 
operating  cost.  Owing  to  a  favorable 
contract  that  expired  last  July  this 
advance  has  been  seriously  felt  by  us 
only  during  the  last  four  months.  As 
our  yearly  consumption  of  coal  ap- 
proximates 300,000  tons  the  additional 
expense  this  year  would  reach  at  pres- 
ent rates  $2,000,000. 

One  item  of  expenditure  is  a  reserve 
to  depreciation  amounting  to  $2,000,- 
000.  This  is  annually  set  aside  from 
fares  to  provide  for  renewals  and  re- 
placements. Proper  charges  to  depre- 
ciation are  made  not  to  build  up  the 
property  to  the  full  measure  of  original 
investment  for  the  benefit  of  stockhold- 
ers, but  to  maintain  it  in  good  operating 


condition  for  the  benefit  of  the  public. 
This  means  that  the  old-fashioned 
notion  of  maintaining  a  railway  by 
hand  to  mouth  methods  with  large  ex- 
penditures in  prosperous  years  and 
small  expenditures  or  none  at  all  in  the 
lean  years  is  a  thing  of  the  past.  Sound 
policy  to-day  takes  care  that  out  of 
every  day's  receipts  something  is  put 
aside  to  meet  the  wear  and  tear  that  is 
constantly  taking  place.  The  lack  of 
this  precaution  accounts  in  large  part 
for  the  disasters  which  have  over- 
taken so  many  street  railway  enter- 
prises. 

ZONE  FARES  OR  FLAT  RATE? 

Boston  has  a  single  flat  fare.    It  is  a 
tradition  and  also  the  profound  belief 
of  many  that  this  distributes  the  pop- 
ulation,   attracting  people  from  con- 
gested centers  into  the  outlying  sub- 
urbs and  that  in  so  doing  it  establishes 
more     healthful     living     conditions. 
Many  families  have  undoubtedly  es- 
tablished their  homes  in  these  suburbs 
in  the  confident  belief  that  this  single 
flat  fare  would  never  be  disturbed. 
But  there  are  in  Boston  enthusiastic 
advocates  of  zone  fares  as  more  equi- 
table and  just  in  making  the  cost  of 
riding  proportionate  to  some  extent 
with   the   distance   the   passenger   is 
carried.    The  trustees  are  studying  the 
comparative  merits  of  the  two  systems 
in  the  light  of  experience  in  this  and 
other  countries. 

Experiments  have  been  recently 
made  with  a  five-cent  fare  upon  lines 
where  the  run  is  short  and  where  prac- 
tically no  competition  with  the  general 
ten-cent  fare  is  involved.  Some  of 
these  experiments  have  proved  failures 
but  two  of  the  Unes  are  now  in  success- 
ful operation. 

Nothing  is  more  idle  than  an  attempt 
to  compare  street  railway  service  in 
one  city  with  that  in  another  without 


NATIONAL  MUNICIPAL  BEVIEW  SUPPLEMENT  [Feb. 


1921] 


BOSTON— THE  PUBLIC  TRUSTEE  PLAN 


115 


l| 


114 

the  knowledge  that  is  nec^sary  to  en- 
able one  to  make  proper  "^Ho^f  ^^«^ 
distinguishing  condition   that  make 
the  seWice  dissimilar.    The^  diffmng 
conditions  vitally  affect  both  the  kind 
and  the  cost  of  transportation,     lake 
a  look  at  the  situation  m  B<»ton.    Ihe 
center  of  business  is  confined  to  a 
small  area  into  and  from  which  on  an 
average  forty  to  fifty  thousand  peopte 
daily  ride  upon.the  street  cars  at  about 
the  same  hour  in  the  moniing  and  at 
night.     The   problem   of   furmshmg 
proper  accommodation  is  one  that  is 
diflScult.    We  have  here  a  transporta- 
tion wheel  with  a  hub  becoming  more 
and  more  inadequate  to  receive  the 
spokes  which  enter  it  as  the  terminal 
Eradiating  lines.    S*"**  ^"^^^^ J^^i 
long  ago  inadequate  for  general  travel 
and  the  street  cars  were  dnven  mto 
subways.    The  first  subway  bu.lt  m 
this  country  was  built  in  Boston    The 
cost  of  constructing  and  mainta,ining 
these  subways  is  borne  under  easting 
law  by  the  car  rider  in  rentals  paid  from 
fares  into  the  public  treasury.    The 
i.vartion  of  this  tax   now  means  an 
^rSpayment  of  nearly  $2,000 000 
or  one-half  of  a  cent  upon  each  nde. 

This  is  a  relic  from  days  when  tolls 
were  exacted  for  the  use  of  highways^ 
^e  street  car  is  a  P«bbc  conv^anoe 
operated  in  Boston  by  P"bl'«  .o^^'^;^ 
aid  the  subway  is  a  public  highway. 
The  automobilist  uses  highways  spe- 
ciaUy  adapted  at  great  cost  to  his  con- 
vince Vithout   contribution   from 
him  to  construction  expense.     What 
excuse  is  there  for  this  discrimination 
in  his  favor  and  against  the  car  r,d«? 

The  investment  in  the  Boston  ele- 
vated system,  including  subways  and 
I^elsf  is  $136,500,000.    The  average 
ride  over  this  system  is  four  and  one 
S  miles  while  the  longest  di^^-^ 
covered  is  nineteen  miles.    The  aver 
age  number  of  passengers  earned  dai  y 
in  1918  was  955.245;  the  average  m 


1919  was  889.750.     The  »v^'^8\^^^         . 
October  of  this  year  was  947.816     Ihe 
budget  of  expenditures  for  1919  was 
$32,000,000.    The  budget  for  this  year 
is  $34,000,000. 

Up^n  .Assuming  office  the  trustees 
immediately  worked  out  a  general  plan 
of  improvement  involving  a  total  out- 
lay during  a  period  of  five  years  of 
about  eighteen  million  dollars  charge- 
able in  about    equal    P^Pof  f  "^  ,.*" 
capital  and  replacement.     Substantial 
progress  has  been  made  toward  the 
consummation  of  this  program  bnnging 
with  it  modem  cars,  improved  traxjk, 
larger  accommodation  and  more  fre- 
quent service.  .         ,„n,„ 
The  trustees  make  no  claim  as  to  the 
success  of  the  experiment  m  pubhc 
control  which  is  in  their  charge.    One 
reason  for  saying  little  or  nothing  about 
what  has  been  done  is  the  ever  present 
knowledge  on  their  part  that  whatever 
it  may  be  it  is  only  a  step  toward  the 
goal  which  they  hope  the  service  will 

finally  reach.  .    . 

The  board  is  organized  with  chair- 
man   and    recording    secretary,    the 
former  assuming  the  ^l^ties  %dinari  y 
performed  by  the  president  of  a  rail, 
way  and  the  latter  those  ordinarily 
performed  by  the  clerk  of  a  board  of 
dkectors.    Committees    of    two    are 
assigned    to    administrative    depart- 
3  and  report  from  their  severa 
spheres  of  activity  at  the  stated  or 
special  meetings  of  the  board.     The 
t^tees  in  this  way  are  keeping  m  close 
touch  with  all  matters  of  administra- 
tion    The  operating  staff  has  at  its 
head  our   general  manager,   Edward 
Dana,  who  was  appointed  to  that  posi- 
tion in  recognition  of  his  fitness  for  its 
Jes^LibiUtlTs.     The   confidence   re^ 
posed  in  him  has  been  amply  justified 
in  what  he  has  accomphshed,  and  his 
abiUty,  energy  and  untiring  devoUon 
to  the  work  and  his  harmomous  rela- 
tions with  the  trustees  and  with  sub- 


ordinate oflGlcials  and  employes  have 
proved  invaluable. 

GUIDING    PRINCIPLES    OF    ADMINISTRA- 
TION 

There  are  certain  principles  of  ad- 
ministration that  the  trustees  have 
adopted  to  which  I  will  briefly  refer. 

Roosevelt,  as  we  know,  was  fond  of 
referring  to  the  square  deal.  K  men 
would  oftener  take  the  trouble  to  get 
below  the  surface  of  life  they  would 
find  that  there  is  something  in  every 
one  that  responds  to  the  call  for  it,  for 
even  handed  justice.  It  is  the  saving 
grace  in  the  world.  But  we  can  be  sure 
that  no  such  thing  is  possible  where 
ignorance  rules  instead  of  knowledge. 
Every  effort  then  should  be  made  to 
give  out  the  truth,  the  whole  truth  and 
nothing  but  the  truth  with  respect  to 
all  matters  that  are  of  interest  to  the 
travelling  public. 

Nothing  hinders  the  approach  of  rail- 
way service  to  the  standard  which  it 
ought  to  reach  so  much  as  the  lack  of 
patience.  We  all  fail  to  exercise  it. 
We  jump  to  conclusions  without  know- 
ing the  facts;  we  hand  in  our  verdict 
without  waiting  for  the  evidence. 
How  can  we  secure  patience  on  the 
part  of  the  public?  In  only  one  way, 
by  publication  of  facts.  Plain  and 
complete  and  frequent  information 
makes  for  the  sound  public  opinion 
which  is  the  safeguard  of  manage- 
ment. 

Street  transportation  must  always 
be  subject  to  unavoidable  interruption. 
A  car  loaded  with  passengers  anxious 
to  reach  office  or  home  stops,  and  an- 
other car  stops,  and  another,  and  an- 
other until  the  Une  is  choked  with  cars 
carrying  hundreds  of  impatient  men 
and  women.  The  use  of  every  effort 
to  let  the  crews  and  the  passengers 
know  perhaps  that  a  truck  has  fallen 
across  the  track,  or  that  a  drawbridge 


is  up,  or  that  a  rail  is  broken,  or  some- 
thing wrong  with  the  p>ower  is  worth 
the  cost  at  almost  any  price.  With  the 
information  conductors  can  cope  with 
the  emergency  and  passengers  will  be 
as  patient  as  we  can  fairly  ask. 

Financial  interests  are  entitled  to 
know  the  whole  truth.  Credit  cannot 
live  without  frank  information.  If  this 
is  given  credit  will  follow  as  far  as  it 
ought  to  follow. 

Close  relations  should  be  established 
between  management  and  employes. 
Acquaintance  on  the  part  of  the  men 
with  receipts  and  expenditures  with 
the  reason  for  existing  conditions  and 
plans  for  their  improvement  and  op- 
portunity to  make  suggestion  about 
them  will  tend  to  lessen  indifference, 
create  mutual  confidence  and  awaken 
ambition  and  pride  in  work. 

Street  car  service  for  the  most  part 
is  a  personal  undertaking.  Its  standing 
in  the  community  depends  chiefly  upon 
the  men  who  operate  the  cars.  Direct- 
ors or  trustees  or  general  managers 
may  be  wise  in  their  day  and  genera- 
tion and  yet  if  their  wisdom  fails  to 
estabUsh  team  work  with  their  em- 
ployes it  will  be  of  little  avail. 

Co-operation  between  the  public  and 
employes  is  vital  to  success.  Both 
must  contribute  to  it.  Bad  work  by 
the  employe  is  quickly  condemned. 
Why  not  commend  good  work?  The 
automobile  is  the  carriage  of  the  indi- 
vidual. The  car  is  the  carriage  of  a 
group  of  individuals,  practically  their 
automobile.  If  your  chauffeur  shows 
skill  you  compUment  him.  Why  not 
say  a  word  in  commendation  to  motor- 
man  or  conductor  who  does  good 
work? 

Everyone  knows  the  difference  be- 
tween the  motorman  whose  skill  makes 
the  journey  safe  and  agreeable  and  the 
motorman  who  stops  and  starts  his 
car  in  a  way  that  throws  his  passen- 
gers about  or  drives  it  at  a  pace  that  is 


NATIONAL  MUNICIPAL  REVIEW  SUPPLEMENT         [Feb. 


1921]       INDIANAPOLIS  RETAINS  THE  FIVE-CENT  FARE 


117 


■II 


> 


116 

disagreeable  if  not  dangerous.  Every- 
one appreciates  the  conductor  who  is 
alert,  helpful  and  pleasant  Why 
should  passengers  refuse  to  heed  the 
request  he  makes  of  them  in  their  own 
interest  and  that  of  all  who  nde? 

I  have  a  last  personal  word.    1  have 
long  been  acquainted  with  the  men  who 
have  had  charge  of  the  railways  in 
Massachusetts  and  in  New  Englajid. 
They  have  been  men  who  are  held  in 
the  highest  esteem  in  the  commumties 
where  they  live.    Through  the  stress  of 
all  these  years  they  have  kept  at  their 
posts  undismayed.    The  record  is  one 
of  ability,  loyalty  to  pubUc  interests 
and  unblemished  honor.    Nor  are  they 


unUke  the  men  who  have  managed 
street  railways  elsewhere. 

Under  the  conditions  which  prevail 
to-day  we  may  all  of  us  feel  a  new  zeal, 
a  new  confidence  in  the  success  of  the 
work  at  which  they  have  labored  so 
long.     My  last  word  then  is  one  of 
optimism.   But  the  struggle  is  not  over. 
Fares  are  not  yet  adjusted.    There  is 
the  fight  against  the  jitney  and  the 
contest  with  the  private  automobile; 
the  search  for  new  economies  to  meet 
higher  costs  of  operation;  the  effort  to 
restore  credit  and  inspire  new  conh- 
dence  in  capital.    So  it  is  an  up  grade 
and  a  long  pull  that  lies  ahead,  but 
the  street  car  is  bound  to  win. 


INDIANAPOLIS  RETAINS  THE  FIVE 

CENT  FARE^ 

BUT  REJECTS  SERVICE-AT-COST 


BY  E.  I. 

ChaxTman,  PuUic  Service 

Your  convention  meets  in  Indian- 
apohs,  a  community  that  believes  m  a 
five-cent  street  carfare.    It  hopes  to 

retain  it. 

Those  of  you  who  have  come  from 
Portland,  Maine,  and  Portland,  Ore- 
gon, from  New  Orleans  and  the  Twin 
Cities,  and  from  cities  between,  may 
experience  in  IndianapoUs  the  pleasant 
reminiscence  of  the  good  old  days  of 

1  Editor's  Note:    At  the  time  of  the  National 
Municipal  League  meeting  in  Indianapolis,  there 
was  pending  before  the  Indiana  Commission,  as 
commented  on  by  Mr.  Ix^wis  in  his  addr^,  a 
petition  of  the  Indianapolb  Street  Ra Jway  Com- 
Uny  for  a  two  cent  transfer  charge.  This  petition 
^  acted  upon  December  18.  1920  and  a  one 
cent  transfer  charge  was  granted,  the  five  cent 
basicfarebeingretained.   The  question  of  retain- 
ing or  increasing  this  charge  in  the  future  will  be 
a^wered  in  accordance  with  the   anticipa^ 
changed  conditions  affecting  both  costs  and  rev- 
enue toing  Wh  as  their  effecU  are  discerned. 


LEWIS 

Commission  of  Indiana 

five-cent  street  car  rides.  With  the 
desertion  of  Cleveland,  the  list  of 
places  where  the  all  but  forgotten 
sensation  of  buying  a  street  car  ride 
with  one  coin— unless  it  be  a  ten-cent 
piece— is  approaching  the  point  of  near 

extinction.  «     ,     j  *u« 

Delegates    from    Portland    on    the 
Atlantic  Coast  paid  a  ten-cent  street 
carfare  to  get  to  the  raibroad  station. 
K  they  stopped  at  any  cities  enroute, 
except  New  York  whose  five-cent  fares 
are  causing  heavy  deficits  that  cannot 
continue,  they  have  paid  seven,  eight 
or  ten  cents  for  street  car  rides.     In 
Boston  it  was  ten  cents,  in  Providence 
six  in  Albany  seven,  in  Buffalo  seven, 
in  Newark  seven,  in  Philadelphia  seven, 
in   Baltimore   seven,   in   Washington 
eight,  in  Pittsburgh  ten,  in  Cleveland 
six  in  Detroit  six,  in  Toledo  seven,  m 


Columbus    six,    in    Cincinnati    eight 
cents. 

Those  coming  from  Portland  on  the 
Pacific  Coast  paid  eight  cents  to  get 
to  their  station.  If  they  stopped  off 
enroute  they  paid  a  ten  cent  fare  in 
Seattle,  in  Tacoma  ten  cents,  in  Spo- 
kane six,  in  San  Francisco  five,  in  Los 
Angeles  five,  in  Salt  Lake  seven,  in 
Denver  six,  in  Topeka  eight,  in  Omaha 
seven,  in  St.  Paul  six,  in  MinneapoUs 
six,  in  New  Orleans  eight,  in  Louisville 
five,  in  Kansas  City  eight,  in  St.  Louis 
seven,  in  Milwaukee  seven,  in  Chicago 
eight  cents. 

On  July  1,  1920,  I  do  not  have  the 
numerous  changes  upward  since  that 
date,  if  you  had  stopped  off  for  a  street 
car  ride  in  any  one  of  69  municipalities, 
including  such  cities  as  Boston,  Pitts- 
burgh and  Seattle,  you  would  have  paid 
ten  cents  for  a  street  car  ride;  if  in  any 
one  of  32  cities,  eight  or  nine  cents;  if 
in  any  one  of  178  cities,  seven  cents;  if 
in  any  one  of  176  cities,  six  cents;  and, 
generally,  there  would  have  been  extra 
charge  for  transfer  or  for  continuation 
of  ride  from  one  zone  into  another 
zone.  To-day  600  cities  have  street 
car  cash  fares  in  excess  of  five  cents. 

While  discovery  of  a  place  where  one 
can  actually  buy  18  miles  of  riding  for 
five  cents  is  notable,  it  is  not  as  re- 
markable as  the  discovery  that  the 
company  is  solvent  and  full  of  hope. 
Returning  confidence  in  its  future  is 
indicated  by  higher  bid  prices  for  its 
securities. 

On  July  1,  1920,  there  were  118 
companies,  with  a  total  of  7,820  miles 
of  track  in  receivership.  Since  July 
1  there  have  been  a  number  of  receiver- 
ships added  to  this  depressing  total. 
Other  companies,  some  of  which  have 
exhausted  possibilities  of  eight-  and 
ten-cent  fares,  are  showing  hopeless 
tendencies.  Fifty-six  of  those  118 
receiverships  occurred  between  June 
1,  1919,  and  July  1,  1920..  Obviously 


the  departure  from  the  five-cent  fare 
has  not  been  a  complete  success.  As 
an  institution  the  street  railroad  has 
the  pallor  of  bankruptcy. 

A  great  deal  of  attention  has  been 
directed  to  rehabihtation,  or  one  might 
say  resuscitation,  of  the  national  sys- 
tem of  steam  railway  transportation. 
Our  congress  has  given  its  best  efforts 
to  that  solution.  Important  as  is  the 
problem  of  the  steam  railroads,  the  fact 
remains  that  while  they  transport 
approximately  one  billion  persons 
annually,  the  street  railways  transport 
fourteen  or  fiif teen  persons  to  every  one 
carried  by  the  steam  roads. 

The  day  is  past  when  financial 
distress  of  the  street  railway  industry 
could  be  looked  on  as  being  only  of 
concern  to  the  industry.  The  growth 
of  cities  is,  as  never  before,  insistently 
demanding  money  for  extensions.  The 
fact  that  the  voice  calling  for  that 
money  generally  does  not  inspire  con- 
fidence constitutes  one  of  our  most 
important  municipal  problems. 

THE      company's     ATTITUDE      TO      THE 
FIVE-CENT   FARE 

When  I  was  invited  to  appear  on 
your  programme  it  was  to  speak  on 
"The  Success  of  the  five-cent  fare  in 
Indianapolis."     I  suggested  change  of 
title    to    "The    Five-Cent    Fare    in 
Indianapolis."     That  does  not  imply 
that  the  five-cent  fare  has  not  been  a 
success,  but  I  believe  that  no  one  should 
speak  of  accomplished  success  until  the 
war's    readjustment    period    is    past. 
We  hope,  and  there  seems  to  be  good 
reason  to  expect,  that  two  or  three 
years    from    this    time    IndianapoHs» 
when  called  on  at  one  of  your  meetings, 
can  respond  to  the  toast  "IndianapoHs, 
the  Five-Cent  Street  Carfare  City." 
I  proceeded  after  making  the  change 
in  title  to  block  out  what  I  would  say. 
Since  then,  however,  a  changed  condi- 


118 


NATIONAL  MUNICffAL  BEVmW  SUPPLEMENT         IP*. 


II 


tion  has  come.    The  local  street  car 
company,  by  formal  petition  has  come 
to   the    Commission  saying  that  the 
frenzied  price  raising  in  coal  has  caught 
irand  reversed,  with  the  beginmng  of 
fall    the  favorable  financial  showings 
ie  up  to  that  time.    The  company 
Talking  for  temporary  rehef  a  transfer 
Se  Ld  readiustment  of  pay^^^^^^ 
by  interurban  companies  ^or  trackage 
^d  terminal  facilities,  to  tide  them 
over  this  coal  crisis. 

The  significant  feature  of  the  peti- 
tion,  however,  is  that  there  is  indicated 
no  desire  for  a  higher  basic  fare  than 

^"m^can  be  more  remarkable  than 
the  experience  of  a  pubhc  utihty  com- 
'i:^rer  having  gentlemen  who  two 
years  ago  sat  on  the  front  steps  be 
moaning  the  denial  of  a  six-cent  fare 
^S  coming  around  and  ^ymg 
"We  need  some  temporary  rehef  to 
get  us  past  the  exorlntant  coal  pnce 
L,  but  we  want  to  hold  fast  to  this 

'^S'Si^-narenotinbus^^^^^^ 
for    pleasure.    They    are    intent  J.n 
making  money^a  most  commendable 
^S   for    pubhc    utihties    notwith- 
Sng  occasional  short-sighted  com- 
S  fo  the  contrary.    Why  do  not 
these  gentlemen  who  now  say  a  t^em- 
^r^ry  emergency  faces  them,  petition 
CaTix-centfare?    Because  they  have 
experienced    a    great    awakemng.    It 
may  all  prove  to  be  a  mistake,  but  they 
now  are  of  the  opinion  that  a  higher 
b^c  fare  than  five  cents,  at  least  in 

Sanapolis,  would  result  in  cutUng 
down  the  most  profitable  Vftd^^ 
street  railway  company  s  business 
th^  is,  the  short-haul  patronage  for 
w£.h  there  is  always  the  potential 
rS^tition  of  that  patronage's  own 
S^as  well  as  the  appeal  of  Jitneys- 

Fax^ing    the   fact  that  within    two 

week^  I  shaU  sit  as  one  of  the  judges  m 

■        Z  matter,  I  may  not,  with  propriety, 


go  into  some  details  that  Y?"  niigbt 
desire.  However,  I  am  entirely  free 
J:Tummarize  the  historic  background 
of  low  fares  in  Indianapolis  From 
my  angle  of  view  it  covers  the  sub- 
stantial and  f  midamental  phases  of  the 

subject.    It  is  ^^^,^^^^1^^^.^^^^^^^ 
further  back  than  the  year  1918  when 
on  a  decision  of  the  supreme  court  of 
Inchana,  the  Public  Service  Commi  - 
sl^n  assumed  jurisdiction  and  ehm^ 
nated  fares  of  less  than  five  cents^^ 
December,  1918,  the  company  came  to 
the  Commission  for  a  six-cent  fa^^ 
The    Commission   rejected    the    plea 
chiefly  on  four  revelations  that  re 
suited  from  pubhc  hearings. 


WHY  A  PETITION  FOR  INCREASED  FARE 
WAS  REFUSED 

The  first  revelation  was  that  the 
company  was  not  collecting  its  earned 
'r^^.  The  Commission  reached 
this  decision  as  a  result  of  putting 
trained  check^son^  cars.    T^^^ 

presence  was  not  fuspectea. 
^f  the  company  had  ^e^f  ^  J.^^^^^^ 
of  earned  revenues  did  not  exceed  ^ 
T>er  cent,  and  were  more  nearly  1  per 
^nt     The    Commission's    inspectors 
Xwed  a  loss  of  13.6  per  cent  on  cars 
checked  during  a  six  day  penoj.   Jhe 
Commission  held  that  "It  ^^ ^^^^^? 
provide  increased  revenues  for  peti 
C^r  if  it  does  not  collect  revenues 
Seady  provided."    The  introduction 
Jpa  Wou-enter  cars  was  the  result 
of  this  investigation  and  decision 

The  second  revelation  was  that  the 
value  of  petitioner's  Property  did  not 
warrant  its  financial  obligations.     iHe 
Company  presented  an  inventory  and 
Xation  tetaling  f^^^^f^'^^.J 
the  Commission  had  ever  let  that  val 
nation  get  by,  I^dianapohs  would  have 
been  paying  a  seven-or  eight-cent  fare. 
J^m'Ve'^^y  certain  that  officers  of  ^e 
company    now    wiU    agree    that    the 


1921]        INDIANAPOLIS  RETAINS  THE  FIVE-CENT  FARE 


financial  outlook  under  such  conditions 
would  not  be  as  favorable  as  it  is  now. 
The  hearing  revealed  values  only  a 
little  in  excess  of  half  the  twenty-eight 
million  six  hundred  thousand  dollars. 
No  one,  except  local  taxing  officials, 
who  have  assessed  the  company  at 
almost  twenty  million  dollars,  is  now 
claiming  a  value  in  excess  of  $16,000,000 
or  $16,500,000.  When  a  service-at- 
cost  proposal  was  laid  before  the  Com- 
mission this  year  the  city  and  company 
practically  agreed  to  a  valuation  of 
$15,000,000. 

From  the  date  of  its  decision,  the 
Commission  has  had  the  co-operation 
of  officers  and  various  groups  of  stock 
and  bond  holders  in  working  out  a 
voluntary  reduction  of  obligations  to 
a  proper  basis.     A  superimposed  hold- 
ing and  operating  company,  the  In- 
dianapolis Traction  and  Terminal  Com- 
pany, was  eliminated.    Four  million 
dollars   of  common  stock  for  which 
there  was  no  substantial  background 
was  wiped  out,  and  two  million  one 
hundred  and  eighty  of  interest  bearing 
bonds,  held  in  sinking  funds,  were  can- 
celled, thus  reducing  securities  approxi- 
mately $6,180,000.     Also  $1,000,000  of 
stock  was  made  junior  to  such  an  extent 
that  it  cannot  be  considered  a  liability. 
Securities  were  thus  reduced  approx- 
imately   30    per   cent.      Indianapolis 
Street  Railway  stockholders  who  had 
been  slumbering  in  comfortable  berths 
with  the  assurance  of  guaranteed  stock 
dividends,  were  called  forth  to  operate 
their    property    and    to    assume    the 
hazards  of  preferred  stockholders. 

The  third  revelation  was  of  a 
device  that  was  not  uncommon  in 
the  profitable  days  of  unregulated 
street  railroading.  This  device  was  a 
sinking  fund  for  the  retirement  of 
bonds.  The  street  car  riders  were  not 
only  to  guarantee  dividends  to  a  non- 
operating  company,  but  were  also  to 
wipe   out   the   bonded   indebtedness. 


119 

One  hundred  twenty  thousand  dollars 
annually  was  going  into  this  sinking 
fund.  Also,  the  bonds  which,  it 
would  seem,  should  have  been  annually 
retired  were  continuing  to  draw  in- 
terest. Payments  to  the  sinking  fund, 
and  payment  of  interest  on  bonds  held 
in  the  sinking  fund,  were  amounting 
annually  to  almost  $200,000  of  money 
that  was  badly  needed  for  property  and 
service. 

When  the  Commission  pointed  out 
that  this  plan,  simply  analyzed,  meant 
that   the  public   was   placed   in   the 
position  of  giving  to  the  company  not 
only  sufficient  fares  to  maintain  and 
operate  service,  but  also  ultimately  to 
give  the  company  its  property,  and 
that  such  a  plan  was  not  at  all  consist- 
ent with  regulation  which,  for  emer- 
gency relief,  the  company  was  seeking 
to  come  under,  there  again  was  fine 
co-operation  on  the  part  of  the  bond 
and    stockholders    and    officers.     At 
least    temporarily    the    sinking    fund 
provisions  are  waived.     Most  advan- 
tageously to  all  concerned,  the  waiver 
provides  that  this  money  go  into  bet- 
terments.   This  means  better  security 
for    bond    and    stockholders;     better 
service  for  the  rider. 

The  fourth  controlling  revelation 
was  that  the  community  was  drained 
dry  of  its  young  men,  who  were  among 
the  4,000,000  away  to  war;  that  the 
absence  of  this  vital  part  of  the  popula- 
tion, together  with  the  absence  of 
naany  young  women  and  the  depres- 
sions of  war,  had  very  nearly  stopped 
social  activities;  that  influenza  epidem- 
ics, sweeping  the  nation,  had  all  but 
suspended  local  shopping,  theatre  and 
moving  picture  traffic;  and  that  locally 
industrial  activity  was  not  normal. 

The  Commission,  in  its  denial,  took 
all  these  conditions  into  consideration. 
It  accurately  forecasted  reassumption 
of  normal  life  and  greater  traffic.  The 
change  came  with  a  rush.     In  1918 


120 


NATIONAL  MUNICIPAL  REVIEW  SUPPLEMENT  [Feb. 

justment  has  come,  it  is  naturally  to  be 
presumed  that  this  area  will  be  least 
and  last,  affected. 

When  the  company  came  to  the 
Commission  its  plea  was  that  it  was  at 
bankruptcy's  door.  Its  tracks  and 
pavements  were  in  bad  condition;  the 
condition  of  its  rolling  stock  was  ag- 
gravatingly  proclaimed  by  flat  wheels; 
its  finances  were  such,  it  was  repre- 
sented, as  not  even  to  permit  the 
installation  of  rather  inexpensive  fare 
collecting  boxes,  or  pay-as-you-enter 
equipment;  its  operating  forces  were 
not  good;  four  much  needed  extensions 
were  not  forthcoming. 

There  are,  of  course,  critics  and  the 
impatient.    Everything    that    is    de- 
sired has  not  been  accompUshed.     Cars 
are  crowded  during  rush  hours.    But 
those  who  will  stop  to  survey  the  situa- 
tion, must  agree  that,  under  the  reor- 
ganization, with  a  five-cent  fare  and 
universal  transfer,  and  in  face  of  the 
most  adverse  conditions  the  country 
has  ever  known,  there  has  been  in  the 
short  period  of  two  years  a  decided 
change.    All    cars    have    been    made 
pay-as-you-enter;  new  cars  have  been 
purchased  and  open  cars  have  been 
converted  into  closed  cars,  and  some 
of  these  are  of  exceptionally  good  type; 
the  operating  force  is  of  higher  stand- 
ard; flat  wheels  have  disappeared  and 
general  maintenance  has  greatly  im- 
proved; three  of  the  four  extensions, 
the  College  avenue,  the  Shelby  street, 
and  the  Premier  motor  car  plant  ex- 
tensions, have  been  made,   and  the 
fourth,  the  Illinois  street  extension,  is 
scheduled  for  next  spring,  unless  the 
world  upsets  again.     Diu-ing  this  pe- 
riod the  city  has  done  a  great  work  in 
street  reconstruction  and  the  street  car 
company  is  struggUng  along  with  that. 
No  one  would  presume  to  say  all 
things  are  100  per  cent  good,  or  even 
90  per  cent  good.    I  am,  however, 
asking  you  who  five  in  six,  eight  and 


1921]        INDIANAPOLIS  RETAINS  THE  FIVE-CENT  FARE 


121 


the  Indianapolis  street  cars  transported 
70,003,795  revenue  passengers;  in 
1919  the  trafl&c  jumped  to  84,051,850 
passengers;  in  1920  it  will  probably 
pass  the  94,000,000  mark. 

Briefly  then,  in  answering  to  my 
subject  "The  Five-Cent  Fare  in  In- 
dianapolis," I  would  summarize  by 
saying  that  its  foundation  Ues  in: 

(1)  Elimination  of  unwarranted  financial  obli- 
gations; 

(2)  Elimination  of  a  holding  company— and, 
incidentally,  the  elimination  of  absentee  land- 
lordism; 

(3)  Awakening  to  the  fact  that  the  short 
haul  passenger  is  the  profitable  passenger; 

(4)  Collection  of  earned  revenues; 

(5)  Taking  into  calculation  subnormal  traffic 
conditions  in  the  war  period  and  correct  fore- 
casting of  increased  volume  of  traffic  after  1918. 

(6)  A  healthy  spirit  of  co-operation; 

(7)  An  intelligent  handling  of  the  whole 
situation  by  the  city; 

(8)  Better  public  relations. 

ADVANTAGES   POSSESSED    BY    INDIAN- 
APOLIS 

It  is  true  that  there  are  other  condi- 
tions which  contribute  fundamentally 
to  make  it  possible  for  Indianapolis  to 
be,  when  the  readjustment  is  past — 
"The  Five-Cent  Street  Carfare  City." 
These  advantages  are  geographical  and 

social.  ^        J 

The  street  car  company  mines  a 
large  amount  of  its  own  coal  in  fields 
located  near  to  Indianapolis  and  this 
means  cheaper  fuel  costs  than  those 
faced  by  most  companies.  Wages  and 
cost  of  hving  all  through  the  war 
period  have  been  at  somewhat  lower 
levels  in  Indianapolis  than  those 
prevailing  in  the  zone  of  greatest  war 
activities  and  excesses  which  reached 
back  from  the  Atlantic  seaboard 
through  Buffalo,  Pittsburgh,  Youngs- 
town,  Cleveland,  Detroit,  to  Chicago. 
This  applied  to  street  raihoading. 
Now,  that  the  national  period  of  read- 


ten  cent  street  car  cities  and  who  have 
well  in  mind  what  your  own  cars  and 
service  and  extension  inadequacies  are, 
do  you  really  think  there  is  very  sub- 
stantial ground  for  complaint  from  the 
five-cent  car  riders  of  Indianapolis  or 
the  city  itself? 

I  desire  specifically  to  disavow  any 
intention  of  saying  that  continuation 
of  the  five-cent  fare  would  have  been 
possible  for  all  companies  and  cities. 
I  am  fully  aware  that  it  could  not,  for 
it  has  been  our  duty,  as  a  public 
service  commission,  to  put  higher  than 
a  five-cent  base  fare  into  six  Indiana 
cities.  I  do  believe,  however,  that 
many  cities  did  not  try  out  the  possi- 
bilities of  the  five-cent  fare. 

Looking  at  the  street  car  situation 
nationally,  it  appears  that  the  peak 
has  been  reached  in  operating  costs, 
and  that  the  break  is  near  at  hand. 
Still  the  skies  are  not  clear.  Industrial 
letting  down  will  likely  increase  any 
baneful  effect  of  high  fares  which  may 
fundamentally,  but  not  now  obviously, 
exist.  High  fares  are  not  going  to  get 
some  street  car  companies  past  the 
sheriff  for  the  reason  that  there  have 
not  been  fundamental  readjustments 
of  financial  obligations  and  elimina- 
tion of  needless  superimposed  operat- 
ing companies. 

The  aftermath  of  the  war  also  is 
generally  marked  by  heavy  increases 
in  local  taxation.  Papers  last  week 
announced  the  inauguration  of  the 
six-cent  fare  in  Cleveland  and  gave  as 
one  of  the  reasons  for  the  increase,  at  a 
time  when  prices  are  falUng,  a  $150,000 
increase  in  local  taxation  falling  on  the 
company.  In  Indianapolis  at  just  the 
time  when  we  began  to  look  on  favor- 
able operating  sheets  the  same  burden 
fell. 

The  whole  subject  of  taxation — di- 
rect and  indirect — of  the  conveyance 
of  the  masses  of  urban  population 
loudly  cries  for  careful  study.     Direct 


taxation,  franchise  tax  and  paving 
streets  will,  during  the  coming  year  call 
for  almost  eighteen  per  cent  of  the  fare 
paid  by  Indianapn^Us  street  car  riders. 

I  would  make  a  general  observation 
that  is  applicable  to  the  IndianapK>lis 
situation:  When  the  water  has  been 
squeezed  out,  and  securities  represent, 
and  are  warranted  by  values  of  prop- 
erty put  to  pubHc  service,  those  finan- 
cial obhgations  must  be  protected. 
Occasionally  the  shortsighted  demand 
that  these  legitimate  demands  be 
passed  or  deferred. 

Laying  aside  all  moral  considerations 
what — especiaUy  to-day  when  all  the 
world  wildly  is  bidding  for  money  for 
rehabilitation — can  be  so  detrimental 
to  a  community  as  such  a  course? 

IndianapoUs  is  typical  of  all  cities. 
It  is  growing  with  marvelous  rapidity, 
ten  per  cent  every  three  years.  Street 
car  lines  must  be  extended  so  it  can 
expand.  More  and  better  cars  must  be 
provided  to  carry  more  citizens.  More 
power  house  capacity  must  be  had  to 
move  these  cars.  The  chairman  of 
the  board  of  works  of  this  city  says 
that  $1,500,000  to  $2,000,000  must  be 
sj>ent  by  the  local  company  next  year 
to  keep  transportation  apace  with 
city  growth.  In  this  and  all  other 
cities,  such  heavy  expenditures  must 
constantly  continue  year  after  year. 
The  great  need  of  the  street  railway 
industry  is  credit. 

Where  is  this  money  to  come  from? 
From  security  holders  who  are  unfairly 
dealt  with?  From  bankers  and  other 
custodians  and  trustees  of  money  who 
see  legitimate  obligations  ignored?  Or 
are  the  cities  in  a  position  to  furnish 
the  capital  needed  to  keep  local  trans- 
portation abreast  with  their  growth? 

SERVICE   AT   COST 

In  April  this  year,  the  city  of 
Indianapolis  laid  before  the  Commis- 


120 


NATIONAL  MUNICIPAL  REVIEW  SUPPLEMENT  [Feb. 


1921]        INDIANAPOLIS  RETAINS  THE  FIVE-CENT  FARE 


121 


1^ 


the  Indianapolis  street  cars  transported 
70,003,795  revenue  passengers;  in 
1919  the  traffic  jumped  to  84,051,850 
passengers;  in  1920  it  will  probably 
pass  the  94,000,000  mark. 

Briefly  then,  in  answering  to  my 
subject  "The  Five-Cent  Fare  in  In- 
dianapolis," I  would  summarize  by 
saying  that  its  foundation  Ues  in: 

(1)  Elimination  of  unwarranted  financial  obli- 
gations; 

(2)  Elimination  of  a  holding  company— and, 
incidentally,  the  elimination  of  absentee  land- 
lordism; 

(3)  Awakening  to  the  fact  that  the  short 
haul  passenger  is  the  profitable  passenger; 

(4)  Collection  of  earned  revenues; 

(6)  Takmg  into  calculation  subnormal  traffic 
conditions  in  the  war  period  and  correct  fore- 
casting of  increased  volume  of  traffic  after  1918. 

(6)  A  healthy  spirit  of  co-operation; 

(7)  An  intelligent  handling  of  the  whole 
situation  by  the  city; 

(8)  Better  public  relations. 

ADVANTAGES   POSSESSED    BY   INDIAN- 
APOLIS 

It  is  true  that  there  are  other  condi- 
tions which  contribute  fundamentally 
to  make  it  possible  for  IndianapoUs  to 
be,  when  the  readjustment  is  past — 
"The  Five-Cent  Street  Carfare  City." 
These  advantages  are  geographical  and 

social.  ^        , 

The  street  car  company  mines  a 
large  amount  of  its  own  coal  in  fields 
located  near  to  Indianapolis  and  this 
means  cheaper  fuel  costs  than  those 
faced  by  most  companies.  Wages  and 
cost  of  living  all  through  the  war 
period  have  been  at  somewhat  lower 
levels  in  Indianapolis  than  those 
prevaiUng  in  the  zone  of  greatest  war 
activities  and  excesses  which  reached 
back  from  the  Atlantic  seaboard 
through  Buffalo,  Pittsburgh,  Yoimgs- 
town,  Cleveland,  Detroit,  to  Chicago. 
This  applied  to  street  raibroading. 
Now,  that  the  national  period  of  read- 


justment has  come,  it  is  naturally  to  be 
presumed  that  this  area  will  be  least 
and  last,  affected. 

When  the  company  came  to  the 
Commission  its  plea  was  that  it  was  at 
bankruptcy's  door.  Its  tracks  and 
pavements  were  in  bad  condition;  the 
condition  of  its  rolling  stock  was  ag- 
gravatingly  proclaimed  by  flat  wheels; 
its  finances  were  such,  it  was  repre- 
sented, as  not  even  to  permit  the 
installation  of  rather  inexpensive  fare 
collecting  boxes,  or  pay-as-you-enter 
equipment;  its  operating  forces  were 
not  good;  four  much  needed  extensions 
were  not  forthcoming. 

There  are,  of  course,  critics  and  the 
impatient.     Everything    that    is    de- 
sired has  not  been  accomplished.     Cars 
are  crowded  during  rush  hours.    But 
those  who  will  stop  to  survey  the  situa- 
tion, must  agree  that,  under  the  reor- 
ganization, with  a  five-cent  fare  and 
universal  transfer,  and  in  face  of  the 
most  adverse  conditions  the  country 
has  ever  known,  there  has  been  in  the 
short  period  of  two  years  a  decided 
change.    All    cars    have    been    made 
pay-as-you-enter;  new  cars  have  been 
purchased  and  open  cars  have  been 
converted  into  closed  cars,  and  some 
of  these  are  of  exceptionally  good  type; 
the  operating  force  is  of  higher  stand- 
ard; flat  wheels  have  disappeared  and 
general  maintenance  has  greatly  im- 
proved; three  of  the  four  extensions, 
the  College  avenue,  the  Shelby  street, 
and  the  Premier  motor  car  plant  ex- 
tensions, have  been  made,   and  the 
fourth,  the  lUinois  street  extension,  is 
scheduled  for  next  spring,  unless  the 
worid  upsets  again.    During  this  pe- 
riod the  city  has  done  a  great  work  in 
street  reconstruction  and  the  street  car 
company  is  struggling  along  with  that. 
No  one  would  presume  to  say  all 
things  are  100  per  cent  good,  or  even 
90  per  cent  good.    I  am,  however, 
asking  you  who  Uve  in  six,  eight  and 


L> 


ten  cent  street  car  cities  and  who  have 
well  in  mind  what  your  own  cars  and 
service  and  extension  inadequacies  are, 
do  you  really  think  there  is  very  sub- 
stantial ground  for  complaint  from  the 
five-cent  car  riders  of  Indianapolis  or 
the  city  itself? 

I  desire  specifically  to  disavow  any 
intention  of  saying  that  continuation 
of  the  five-cent  fare  would  have  been 
possible  for  all  companies  and  cities. 
I  am  fully  aware  that  it  could  not,  for 
it  has  been  our  duty,  as  a  pubUc 
service  commission,  to  put  higher  than 
a  five-cent  base  fare  into  six  Indiana 
cities.  I  do  believe,  however,  that 
many  cities  did  not  try  out  the  possi- 
bilities of  the  five-cent  fare. 

Looking  at  the  street  car  situation 
nationally,  it  appears  that  the  p>eak 
has  been  reached  in  operating  costs, 
and  that  the  break  is  near  at  hand. 
Still  the  skies  are  not  clear.  Industrial 
letting  down  will  likely  increase  any 
baneful  effect  of  high  fares  which  may 
fundamentally,  but  not  now  obviously, 
exist.  High  fares  are  not  going  to  get 
some  street  car  companies  past  the 
sheriff  for  the  reason  that  there  have 
not  been  fundamental  readjustments 
of  financial  obligations  and  elimina- 
tion of  needless  superimposed  operat- 
ing companies. 

The  aftermath  of  the  war  also  is 
generally  marked  by  heavy  increases 
in  local  taxation.  Papers  last  week 
announced  the  inauguration  of  the 
six-cent  fare  in  Cleveland  and  gave  as 
one  of  the  reasons  for  the  increase,  at  a 
time  when  prices  are  falling,  a  $150,000 
increase  in  local  taxation  falling  on  the 
company.  In  Indianapolis  at  just  the 
time  when  we  began  to  look  on  favor- 
able operating  sheets  the  same  burden 
fell. 

The  whole  subject  of  taxation — di- 
rect and  indirect — of  the  conveyance 
of  the  masses  of  urban  population 
loudly  cries  for  careful  study.    Direct 


taxation,  franchise  tax  and  paving 
streets  will,  during  the  coming  year  call 
for  almost  eighteen  per  cent  of  the  fare 
paid  by  IndianapoUs  street  car  riders. 

I  would  make  a  general  observation 
that  is  appUcable  to  the  IndianapoUs 
situation:  When  the  water  has  been 
squeezed  out,  and  securities  represent, 
and  are  warranted  by  values  of  prop- 
erty put  to  pubUc  service,  those  finan- 
cial obligations  must  be  protected. 
Occasionally  the  shortsighted  demand 
that  these  legitimate  demands  be 
passed  or  deferred. 

Laying  aside  all  moral  considerations 
what — especiaUy  to-day  when  aU  the 
world  wildly  is  bidding  for  money  for 
rehabiUtation — can  be  so  detrimental 
to  a  community  as  such  a  course? 

IndianapoUs  is  typical  of  aU  cities. 
It  is  growing  with  marvelous  rapidity, 
ten  per  cent  every  three  years.  Street 
car  Unes  must  be  extended  so  it  can 
expand.  More  and  better  cars  must  be 
provided  to  carry  more  citizens.  More 
power  house  capacity  must  be  had  to 
move  these  cars.  The  chairman  of 
the  board  of  works  of  this  city  says 
that  $1,500,000  to  $2,000,000  must  be 
spent  by  the  local  company  next  year 
to  keep  transportation  apace  with 
city  growth.  In  this  and  all  other 
cities,  such  heavy  exp>enditures  must 
constantly  continue  year  after  year. 
The  great  need  of  the  street  railway 
industry  is  credit. 

Where  is  this  money  to  come  from? 
From  security  holders  who  are  unfairly 
dealt  with?  From  bankers  and  other 
custodians  and  trustees  of  money  who 
see  legitimate  obUgations  ignored?  Or 
are  the  cities  in  a  position  to  furnish 
the  capital  needed  to  keep  local  trans- 
portation abreast  with  their  growth? 

SERVICE   AT   COST 

In  April  this  year,  the  city  ci 
Indianapolis  laid  before  the  Commis- 


6 


in 


NATIONAL  MUNICIPAL  REVIEW  SUPPLEMENT  [Feb. 


1921]       INDIANAPOLIS  RETAINS  THE  FIVE-CENT  FARE 


123 


:.    H 


!  i 


sion   a  service-at-cost  plan.    It  was 
designed  to  strengthen  the  credit  of 
the  local  company.     Officers  of  the 
company  were  most  favorable  to  the 
plan.    Most  of  the  members  of  the 
Commission  thought  that  at  last  the 
formula  for  the  solution  of  the  local 
street  railway  problem  had  been  offered. 
I  was  enthusiastic.    Mr.  Samuel  Ash- 
by,  corporation  counsel  for  the  city, 
had  made  a  study  of  the  Cleveland, 
Montreal,  Boston  and  other  service-at- 
cost  plans  that — especially  the  Cincin- 
nati plan — ^had  been  nationally  pro- 
claimed as  being  the  latest  and  best 
thought.    He  had  particularly  studied 
the  great  problem  of  inspring  incentive 
and  initiative  in  the  operating  com- 
pany.   His    plan    incorporated — and 
I   beUeve   improved  upon — the   Cin- 
cinnati idea  of  giving  the  company 
higher  retiu-n  for  lower  fares.     Effi- 
ciency was  to  be  rewarded  by  maximum 
returns;  inefficient  operation  was  to 
be  penahzed.    The  plan  suggested  just 
what  rate  of  return  should  apply  to 
each  step  of  fare.    Mr.  H.  H.  Horn- 
brook,  attorney  for  the  street  car  com- 
pany,  thought,   with  possible  minor 
changes,  the  plan  was  good. 

It  was  agreed  that  it  would  be  well 
personally  to  make  the  rounds  of  some 
of  the  nearby  service-at-cost  cities  for 
the  purposes  of  picking  up  suggestions 
and  perfecting  the  plan  so  that  when 
it  was  put  into  effect "  The  Indianapolis 
Service-at-Cost  Plan"  would  supplant 
the  Cleveland  and  Cincinnati  plans  as 
a  national  model.  With  high  spirits 
we  began  our  journey — ^Ashby,  Horn- 
brook,  and  myself — all  service-at-cost 
advocates.  We  did  not  Umit  ourselves 
to  interviews  with  the  companies,  or 
the  cities.  We  checked  statements  of 
one  against  the  other,  and  then  made 
independent  investigations.  It  was 
not  long  until  we  began  to  be  less  as- 
sured that  we  had  found  a  panacea. 
We  came  home  to  think  it  over.     It 


was  mutually  agreed  to  wait  imtil 
business  trips  carried  us,  individually, 
within  striking  distance  of  more  dis- 
tant points  for  further  investigation. 
In  the  meantime  the  Commission  was 
being  subjected  to  criticism,  together 
with  some  hammering,  for  delaying  the 
adoption  of  service-at-cost.  The  term 
had,  as  usual,  made  its  popular  appeal. 
After  the  three  friendly  investiga- 
tors had  come  to  a  unanimous  decision 
there  still  remained  different  points  of 
view  among  the  public  service  com- 
missioners which,  with  sickness,  re- 
sulted in  further  delay.  The  first  of 
this  month  Mr.  Ashby,  author  of  the 
original  projwsal,  filed  with  the  Com- 
mission a  motion  to  withdraw  it.  The 
company  did  not  object.  Recently 
the  Commission,  without  a  dissenting 
vote,  acted  in  the  affirmative  on  the 
motion.  In  his  motion  for  withdrawal 
Mr.  Ashby  says: 

We  have  been  unable  to  find  or  agree  upon 
any  plan  of  operation  on  the  basis  of  serv- 
ice-at-cost which  would  furnish'^the  incentive  of 
private  ownership  in  an  operation  of  service-at- 
cost.  The  result  of  our  investigations  gener- 
ally has  been  to  raise  a  most  serious  question  and 
doubt  as  to  the  wisdom  of  the  service-at-cost 
plan.  The  inevitable  tendency  seems  to  be  for 
the  operator  or  company  readily  to  accept  in- 
creased cost  of  operation  with  the  view  that  it 
can  be  passed  on  to  the  public  by  higher  fares. 
Such  a  course  results  in  only  adding  to  the 
burden  of  the  public. 

Experience  has  demonstrated  that  any  in- 
crease in  fare  above  the  normal  fare,  results  in 
a  very  substantial  reduction  in  the  number  of 
passengers  carried,  and  has  a  tendency  at  the 
same  time  to  increase  the  cost  of  operation,  so 
that  the  financial  results  of  the  company  under 
such  a  plan  is  unsatisfactory  and  in  some  cases 
disastrous. 

The  experience  of  Cincinnati  is  a  good  il- 
lustration of  the  operation  of  the  plan.  The 
fare  was  increased  from  five  cents  to  six  cents 
and  from  six  cents  to  seven  cents,  and  from  seven 
cents  to  eight  cents,  and  during  the  compara- 
tively short  time  in  which  the  plan  has  been 
in  operation  the  company  has  accumulated  a 


,''^ 


very  large  operating  deficit  of  over  $2,000,000. 
During  practically  the  same  time  the  In- 
dianapolis Street  Railway  Company  has  been 
operating  under  the  emergency  order  of  the 
Commission  at  five  cents.  It  has  been  able,  as 
heretofore  stated,  to  operate  without  a  loss,  its 
revenues  have  been  more  than  its  operating  ex- 
penses and  sufficient  to  pay  a  reasonable  return 
on  the  fair  value  of  its  investment. 

I  have  little  to  add  to  his  brief 
summary.  The  Commission  does  not 
pronounce  the  verdict  of  nostrum  on 
service-at-cost,  nor  dogmatically  cast 
it  out  of  all  future  consideration. 


DANGERS  AHEAD 

It  must,  however,  be  confessed  that 
it  is  suspicious  of  it.  We,  at  least,  will 
wait  to  see  whether  it  proves  to  be 
panacea  or  nostrum.  Personally,  I 
am  apprehensive.  I  have  heard  popu- 
lar acclaim  of  other  epigrammatic 
panaceas.  "  Let  the  people  rule  "  gave 
us  the  direct  primary  which  seems  not 
to  have  met  all  the  exi)ectations  of  its 
friends,  or  the  expectations  of  all  of  its 
friends;  "cost-plus"  has  been  repudi- 
ated; "he  kept  us  out  of  war,"  only 
won  an  election. 

The  remarkable  thing  to  me  is  that 
service-at-cost  did  not  appeal  to  every 
one.  I  recall  numerous  adverse  com- 
ments. One  is  sufficient.  When  the 
hammering  of  the  Conmiission  to  "  save 
the  company"  by  adopting  the  service- 
at-cost  proposal  was  at  its  height,  an 
elevator  operator  said  to  me  "What 
is  the  Commission  going  to  do, 
Mr.  Lewis?"  I  repUed  that  I  did 
not  know.  His  answer  surprised  me: 
"Service-at-cost  is  the  Umit — ^put  that 
in  and  the  company  can  do  anything 
and  charge  it  up  to  the  riders."  My 
elevator  operator  hit  on  the  head  one 
of  the  chief  defects,  and  one  which  it 
seems  to  me  is  fundamental. 

For  example:  Coal  is  hard  to  get 
and  the  price  is  very  high.    A  service- 


at-cost  street  car  operator  who  already, 
as  in  most  places,  finds  it  imj)ossible 
to  earn  the  maximum  return  and  is 
assured  of  the  minimum  which  will 
cover  fixed  charges,  is  called  on  by  a 
representative  of  a  coal  company. 
He  has  plenty  of  coal  for  sale — good 
coal  at  that.  Why  should  this  street 
car  executive  worry  about  its  price? 
Why  should  he  join  in  the  night  and 
day  scramble  of  other  public  utility 
operators  who  do  not  have  his  sinecure, 
and  who  are  struggling  to  get  coal  for 
a  low  price  in  order  to  pull  them  through 
and  give  their  people  some  return  on 
their  investment?  It  is  true  that  they 
may  be  able  to  buy  coal  at  $4.00  a  ton, 
but  here  is  coal  offered  to  him  in  his 
nice  warm  office  at  $6.00.  It  goes  into 
operating  costs.  All  right — service- 
at-cost  covers  all  operating  costs.  I 
fear  that  service-at-cost  simply  means 
that  the  lid  is  taken  off. 

It  is  possible  that  some  time  in  the 
f  utiu-e  some  workable  plan  incorporat- 
ing incentive  for  efficiency  and  ini- 
tiative will  be  worked  out.  While  the 
Commission  does  not  pass  finally  on 
service-at-cost,  nevertheless  it  seems  to 
most  of  us  to  run  contrary  to  human 
nature,  which,  at  least  in  business, 
requires  opportunities  of  a  struggle 
for  gain.  Psychologically,  the  blocking 
out  of  rates  which  shall  apply  if 
operating  expenses  increase,  threatens 
to  become  an  open  invitation  for 
laxity. 

There  is  still  another  possible  defect. 
Service-at-cost  is  closely  connected 
with  city  halls.  Quite  often  city  halls 
are  closely  connected  with  poUtical 
organizations.  Again,  quite  often  po- 
litical organizations  are  connected  with 
various  interests.  When  one  ventures 
into  the  field  of  speculation  of  what 
may  happen  to  service-at-cost  after  the 
novelty  wears  off,  and  after  changes 
in  management  supplant  men  who 
may  have  pride  in  keeping  their  plants 


I 


124  NATIONAL  MUNICIPAL  REVIEW  SUPPLEMENT  [Feb. 


up  and  their  operating  costs  down, 
one  finds  that  the  possibiUties  rival 
those  which  have  brought  cost-plus 
into  disrepute. 

It  is  possible,  for  example,  that 
a  coal  operator,  standing  in  with  a 
highly  politicalized  city  hall  crowd, 
could  obtain  a  contract  for  supplying 
coal  to  the  service-at-cost  utiUty  at  a 
price  considerably  in  excess  of  a  fair 
price.  It  is  possible  that  real  estate 
developers,  operating  through  such  a 
city  hall,  could  cause  the  construction 
of  losing  lines  to  their  projects.  A  tie 
between  a  political  machine  and  the 
street  railway  would  open  the  door 
to  every  sort  of  a  demogogue  and 
agitator.  These  are  only  a  few  of  the 
possible  diseases  that  may  attack 
service-at-cost  in  its  maturity.  I  do 
not  beUeve  that,  up  to  this  time,  they 
have  developed  to  any  great  extent. 
I  sincerely  hope  they  will  not  develop. 

During  the  last  campaign  we  have 
seen,  notably  in  New  York  and 
Chicago,  the  street  carfare  made  the 
football  of  poUtics.  My  incUnations — 
I  am  not  saying  that  they  may  not  be 
wrong,  but  nevertheless  they  are  my 
incUnations  reached  after  a  study  of 
pubhc  utilities  on  four  continents 
during  a  period  of  twenty  years — are 
that  it  is  very  desirable  that  public 
utiHties  be  removed  just  as  far  as 
possible  from  the  very  conditions 
which  I  fear  service-at-cost  invites. 

I  strongly  believe  in  the  poUcy 
of  delegating  regulation  to  men  who 
will  give  their  time  and  best  thought 
to  the  subject  and  who  are  selected 


because  of  fitness  for  their  work,  and 
to  the  removal  of  such  supervision  and 
regulation  from  too  close  contact 
with  local  influences  and  prejudices, 
which  we  know  by  experience  are  some- 
times narrow,  bUnd  and  dogmatic. 
Such  regulation  permits  of  the  accom- 
plishment of  those  things  enumerated 
herein,  which  have  resulted  in  both 
the  five-cent  fare  and  solvency  of  the 
street  car  company  in  Indianapolis, 
and  in  Indiana,  while  all  around  are 
higher  fares  and  wreckage. 

As  a  final  thought,  the  theory  of 
regulation  of  public  utilities  is  service- 
at-cost.  Regulatory  bodies  determine 
rates  by  making  them  only  sufficient 
to  cover: 

1.  Operating  costs. 

2.  The  replacement  of  the  wear  and 
tear  of  the  plant — depreciation. 

3.  Taxes — but  not  individual  income 
taxes. 

4.  A  fair  and  reasonable  return  upon 
the  fair  value  of  property  used  and 
useful  in  performing  the  pubUc  service. 

When  you  have  based  your  rate  on 
those  foundations  you  have  a  service- 
at-cost. 

In  behalf  of  such  control,  I  would 
point  to  the  fact  that  not  one  of  the 
118  electric  railway  receiverships  in  the 
coimtry  is  in  Indiana;  that  only  six  of 
the  600  cities  having  more  than  a  five- 
cent  fare  are  in  this  state,  and  that  the 
electric  railways  in  this  state  emerge 
from  the  trying  ordeals  of  the  war 
period  and  the  more  trying  ordeals  of 
the  post-war  period,  solvent  and  full 
of  hope. 


CLEVELAND— SERVICE-AT-COST  AND 
EFFICIENT  MANAGEMENT 

BY  FIELDER  SANDERS 

City  Street  Railroad  Commissioner,  Cleveland 


On  Sunday,  November  14,  1920,  the 
rate  of  fare  in  Cleveland  was  auto- 
matically   raised,    under    the    Tayler 
"Service-at-Cost"  grant,  to  a  six-cent 
<;ash  fare,  nine  tickets  for  fifty  cents, 
one  cent  for  transfer  and  no  rebate.    No 
objection  was  made  by  the  city,  be- 
cause the  stabilizing  fund  being  below 
$300,000,  under  the  franchise  the  com- 
pany had  the  absolute  right  to  raise 
its  charges.     The   fare   on  March  1, 
1910,  at  the  inception  of  the  Tayler 
grant  was  three  cents  cash,  five  tickets 
for  fifteen  cents,  one  cent  for  transfer 
and  no  rebate.     It  is,  therefore,  the 
fact  that  after  more  than  ten  years  of 
operation  under  the  Tayler  grant,  the 
fare  paid  by  the  car  riders  has  almost 
doubled,  the  exact   figure  being  the 
difference  between  3.33  cents,  the  aver- 
age fare  paid  in  1910  in  Cleveland,  and 
5.90  cents,  the  average  fare  which  will 
be  paid  under  the  present  rate,   an 
increase  of  77  per  cent. 

This  makes  an  examination  of  the 
franchise  and  a  survey  of  the  operation 
of  the  railway  company,  thereunder, 
peculiarly  fitting  at  this  time  in  deter- 
mining whether  service-at-cost  has 
been  a  success  or  a  failure,  or  to  what 
extent  it  has  been  either.  In  my  judg- 
ment it  has  certainly  not  proved  a 
*' Nostrum"  "a  quack  medicine,"  but 
possibly  has  not  quite  approached  a 
'* Panacea''  or  "an  absolute  cure  for  all 
ills." 

The  street-railway  situation  in  Cleve- 
land for  many  years  prior  to  1910  was 
that  of  operation  by  private  companies 
with  the  usual  competition,  and  five- 

125 


cent  fare,  with  a  slightly  reduced  ticket 
rate.     These  companies  consolidated, 
the  fare  remaining  at  five  cents  on  all 
lines,  but  with  added  transfer  privileges 
for  which  no  charge  was  made.     This 
was  followed  by  a  bitter  fight  on  the 
part  of  the  city  authorities  for  a  lower 
fare,  which  after  much  warfare  cul- 
minated in  the  present  settlement.    At 
the  time  of  the  adoption  of  the  fran- 
chise, as  for  many  years  before,  the  car- 
riders  were  paying  five  cent  fare,  eleven 
tickets  for  fifty  cents  with  universal 
free  transfers.     It  was  claimed  that, 
under  proper  management,  with  the 
proper  franchise,  the  car  riders  could  be 
carried  for  three  cents.     As  a  result  of 
all  the  dickering  back  and  forth  it  was 
determined  that  the  car  riders  should 
not  be  carried  at  five  cents  nor  at  three 
cents,  but  at  actual  cost,  whatever  that 
might  prove  to  be.     The  conclusion, 
therefore,  of  success  or  failure  of  the 
plan,  must  be  predicated  upon  the  pur- 
poses which   the  plan   was   intended 
to  carry  out,  and  be  a  finding  as  to 
whether  those  purposes  have  been  car- 
ried out. 

The  franchise  boldly  states  in  its 
preamble  an  ambitious  progranmie,  to 
wit:  "^ 

It  is  the  common  desire  of  the  city  and  the 
company  to  have  all  the  grants  of  street-railway 
rights  then  outstanding  surrendered  and  renewed 
upon  terms  thereinafter  recited,  to  the  end  that 
the  rate  of  fare  may  be  reduced,  the  transfer 
privileges  made  definite,  and  the  right  of  the  city 
as  to  regulation  and  possible  acquisition  made 
definite  and  certain,  and  that  a  complete  read- 
justment of  the  street-railway  situation  should 


1 
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NATIONAL  MUNICIPAL  REVIEW  SUPPLEMENT         [Feb. 


II 


1   ) 


I  I 


126 

be  made,  upon  terms  that  would  secure  to  the 
owners  of  the  property  invested  in  the  street-rail- 
way security  as  to  their  property,  and  a  fair  and 
fixed  rate  of  return  thereon,  at  the  same  time  se- 
curing to  the  public  the  largest  powers  of  regula- 
tion in  the  interest  of  jniblic  service,  and  the  best 
streetrraUroad  transportation  at  cost,  consistent 
with  the  security  of  the  property,  and  the  cer- 
tainty of  &  fixed  return  thereon,  and  no  more. 

It  will  not  be  claimed  by  anyone  that 
any  of  these  declared  objects  of  the 
franchise  is  or  was  anything  but  desir- 
able and  laudable,  except  that  possibly, 
in  view  of  the  developments  of  the  last 
two  or  three  years,  some  may  claim 
that  a  fixed  rate  of  return,  and  no 
more,  is  not  now  in  the  best  interests  of 
the  company  and  the  public.  I  wiU 
refer  to  this  particular  claim  agam. 
It  will  also  be  admitted  that,  if  these 
objects  of  the  grant  have  been  substan- 
tially carried  out,  a  great  civic  benefit 

has  resulted. 

The  questions  therefore  before  us 
are.  Has  the  rate  of  fare  been  reduced, 
the  transfer  privilege  made  definite,  the 
city's  regulation  effective?    Have  the 
owners  had  security  for  their  property, 
and  have  they  had  a  fair  and  fixed  rate 
of  return,  have  the  car  riders  had  the 
best  street-railway  transportation  at 
cost?    If  so,  haw  has  it  been  done,  and 
what  is  there  about  the  franchise,  or  the 
management,  or  the  surrounding  cur- 
cumstances  that  has  made  such  a  con- 
clusion possible? 

ARBITRATION  BOARD  ENDORSES  TAYLER 

GRANT 

The  question  of  the  failure  or  success 
of  a  contract  is  ordinarily  determined 
usually  by  the  facts  themselves,  but 
sometimes  by  the  opinion  of  experts 
who  have  gone  over  the  facts  and  have 
drawn  conclusions  therefrom  in  the 
light  of  testimony  and  their  experience. 
I  desire  to  present  in  evidence  an  opin- 
ion   first,    which    combines    the    two 


methods.    During  the  last  half  of  the 
year  1919  and  the  first  half  of  the  year 
1920,  the  city  of  Cleveland  had  a  very 
lively  controversy  with  the  Cleveland 
Railway  Company  to  determme  the 
question  whether  the  fixed  return  of  6 
per  cent  provided  in  the  original  fran- 
chise should  be  changed  to  7  per  cent. 
This  finally  developed  into  a  popular 
vote  at  a  referendum,  which  resulted 
unfavorably  to  the  company,  as  such 
matters  usually  do  when  placed  before 
the  public.    But  in  the  middle  of  the 
controversy  a  very  extended  hearmg 
was  had  before  a  board  of  arbitrators. 
This  board  of  arbitrators  went  into 
the  financial  condition  of  the  company 
and  all  matters  surrounding  it  very 
thoroughly.    The   hearing   consumed 
many  weeks.    Financial  and  street- 
railway  experts  from  all  over  the  coun- 
try testified,  both  in  behalf  of  the  city 
and  in  behalf  of  the  company.    The 
city  lost  the  arbitration  so  far  as  the  7 
per  cent  question  was  concerned,  but  in 
the  decision  of  the  board,  the  franchise, 
the  management  of  the  company  and 
the  actions  of  the  city  in  its  regulating 
capacity  received  a  very  illuminating 
commendation.    The  board  said: 

The  franchise  and  the  amendments  thereto 
have  been  shown  by  ten  years  of  trial  to  be  sound 
in  principle,  practical  in  operation,  and  of  great 
benefit  to  the  Cleveland  Railway  Company  and 
its  stockholders  and  to  the  public.    It  has  kept 
the  Cleveland  RaUway  Company  from  exposure 
to  the  dangers  and  misfortunes  that  have  over- 
taken other  railway  properties  in  most  other 
large  cities.    The  protective  features  of  the 
franchise,  together  with  the  high  standard  of 
raUway  management  and  intelligent  municipal 
supervision  which  the  Cleveland  Railway  has 
had,  have  resulted  m  giving  to  Cleveland  the 
best  street-railway  service  at  the  lowest  cost  of 
any  city  in  the  United  States.    The  testimony 
has  taken  a  wide  range.    .    .    •    The  city  street 
raihoad  administration  has  always  been  efficient 
and  keen  to  the  pubUc  interest,  and  there  is  no 
reason  to  believe  that  it  will  be  otherwise  in  the 
future.    .    .    .    The  evidence  shows  that  this 


1921] 


CLEVELAND— SERVICE-AT-COST 


127 


railway  property  has  been  maintained  at  a  high 
standard,  that  it  justly  enjoys  the  reputation  of 
being  the  best  managed,  best  equipped  and  most 
successful  street-car  enterprise  in  the  country. 
We  have  been  shown  that  a  higher  percentage  of 
expenditure  for  maintenance  and  upkeep  has 
been  in  force  here  than  in  any  other  cities.  Ex- 
perts have  analyzed  the  situation  and  presented 
the  conclusions  to  us,  that  by  reason  of  efficient 
and  intelligent  executive  management,  and  by 
reason  of  the  high  rate  of  upkeep  and  mainte- 
nance, a  large  appreciation  in  the  value  of  the 
property  has  resulted.  .  .  .  The  most  im- 
portant result  of  this  hearing  is  the  full  and  com- 
plete illumination  of  the  question  of  the  safety 
of  the  Cleveland  Railway  stock  as  an  investment. 
A  right  understanding  of  the  franchise  discloses 
that  the  stock  of  the  Cleveland  Railway  Com- 
pany is  safeguarded  and  protected  so  as  to  be- 
come a  quasi-municipal  investment.  .  .  . 
We  have  no  difficulty  in  reaching  the  conclusion 
that  this  stock  is  protected  and  safe  to  the 
investor.    .    .    . 

This  was  the  decision  of  an  unbiased 
court  on  the  facts  before  it. 

THE   TESTS   OP  FARES  AND   SERVICE 

Let  me  now  briefly  examine  the  facts 
themselves,  of  ten  years  of  operation, 
to  see  if  they  show  that  the  franchise 
has  carried  out  its  objects,  if  this  par- 
ticular service  at  cost  has  made  good. 
Considering  increased  fare  first,  the  ob- 
jection that  the  fare  has  almost 
doubled  under  service  at  cost  might  be 
dismissed  with  the  statement  that 
every  other  commodity  has  doubled  in 
price  in  the  last  ten  years,  and  that  it  is 
only  in  accordance  with  the  general 
economic  trend  of  the  last  ten  years 
that  the  price  of  a  ride  in  Cleveland  is 
now  almost  twice  what  it  was  in  1910. 
The  wages  of  the  trainmen  operating 
the  cars,  for  instance,  have  increased 
188  per  cent  since  1910. 

But  if  that  alone  were  said,  we  would 
be  justified  in  concluding  that  the 
franchise  has  not  been  a  moving  factor 
in  improving  matters,  but  has  simply 
ridden  with  the  general  trend  of  events. 


The  fare  at  its  inception  was  about 
two  cents  lower  than  the  fare  in  other 
cities  through  the  country,  with  one  or 
two  possible  exceptions;  it  has  stood 
through  the  years  at  the  same  ratio  to 
rates  general  elsewhere,  and,  notwith- 
standing this  last  raise,  it  is  still  lower 
than  most,  and  possibly  still  at  the 
same  ratio  to  the  fares  in  other  cities. 
One  tremendous  result  of  this  low  fare 
in  Cleveland  not  to  be  forgotten  is  the 
fact  that  its  car  riders  in  eight  years 
between   1910  and   1918  have  saved 
more  than  thirty  million  dollars,  over 
and  above  what  they  would  have  paid 
if  the  fare  had  continued  to  be  five 
cents   under  the  pre-existing  private 
management  as  in  other  cities;  or,  in 
other  words,  they  have  saved  for  their 
own  use  an  amount  which,  if  it  had 
been  put  in  a  sinking  fund,  would  have 
purchased  all  of  the  railway  company's 
property  in  September,  1918.    From 
the  public's  standpoint,  this  one  fact 
alone  has  justified  the  Tayler  franchise. 
But  that  fact  is  only  the  more  obvi- 
ous of  results  obtained  for  the  car  riders. 
Examining    further,    notwithstanding 
the  low  price  of  our  service,  statistics 
show  that  from  1910  to  1920,  while  the 
population  in  the  city  and  suburbs 
increased  40  per  cent  and  the  number 
of  fares  paid  increased  75  per  cent,  the 
service  given  in  Cleveland  has  doubled. 
The  Broadway,  Euclid,  Payne  and  St. 
Clair  lines  east  of  the  river,  and  the 
Lorain  and  Detroit  lines  west  of  the 
river,  the  six  heaviest  trunk  lines  of  the 
system,  show  in  their  headways  that 
during    1910,    in    the    morning    rush 
period,  7,790  seats  per  hour  were  fur- 
nished; 3,192  seats  per  hour  on  the  base 
tables  and  9,690  seats  per  hour  in  the 
evening    rush    period.    The    present 
headways  on  the  same  six  lines  furnish 
15,700  seats  per  hour  in  the  morning 
rush,  5,590  seats  hourly  on  the  base 
tables  and  19,300  seats  per  hour  in  the 
evening  rush,  an  increase  of  102  per 


V 

■■>i 


128 


NATIONAL  MUNICIPAL  REVIEW  SUPPLEMENT         [Feb. 


II 


cent  in  the  morning  rush,  75  per  cent 
on  the  base  tables  and  99  per  cent  in 
the  evening  rush.  I  am  giving  seats 
rather  than  headway  because  of  the 
difference  in  the  equipment . 

The  number  of  passenger  cars  has  in- 
creased from  955  in  1910  to  1,515  in 
1920.     Great  changes  in  the  character 
and  size  of  the  cars  have  been  made. 
The  average  seating  capacity  of  the  old 
cars  was  about  38;  the  newest  cars  seat 
58  and  60.    The  total  seating  capacity 
of  the  1910  equipment  was  36,100,  of 
the  1920  equipment  74,800.     The  total 
standing  capacity  was  44,000  in  1910; 
in  1920  it  is  80,460.     So  that  while  the 
number  of  cars  has  not  doubled,  the 
seating  capacity  has  more  than  doubled, 
and  the  combined  seating  and  standing 
capacity  is  almost  double.    In  these  ten 
years  375  of  the  955  cars  owned  in 
1910,  nearly  40  per  cent  of  the  total, 
have  been  retired,  so  that  there  are 
now  on  the  system,  of  1,515  cars,  only 
580  that  are  more  than  ten  years  old. 
In  the  same  period  of  time,  the  com- 
pany has  developed  a  large  number  of 
additional   lines   within   the   city    (a 
smaller  number  outside).     In  1910  the 
railway  operated  246  miles  of  track, 
exclusive  of  special  work,  track  in  car 
yards,    etc.     Today   it    operates    303 
miles,  an  increase  of  23  per  cent .    Most 
of  this  increase  is  in  new  trunk  lines 
and  new  cross-town  lines  within  the 
original  Hmits  of  the  city  of  Cleveland, 
although  some  of  it  represents  pushing 
out  into  the  country.     In  addition  al- 
most the  entire  layout  of  car  houses, 
shops   and  power   stations   has   been 
completely  renewed.     Many  new  most 
modern  car  stations  have  been  built. 
The  various  power-generating  stations 
have    been    abandoned,    except    one, 
which  is  on  the  programme  for  disman- 
tling  in   the  near  future.     Power   is 
being  purchased,  and  many  new  sub- 
stations have  been  built  or  are  under 
way  for  distributing  purposes.     The 


finest  street-railway  shops  in  the  world 
have  been  built,  at  a  cost  of  $1,300,000. 
The  company  has  developed  in  the  last 
three  years  an  extensive  plant  for  han- 
dling materials  in  its  maintenance-of- 
way  yards,  and  has  added  all  kinds  of 
improved  conveyors,  trucks  and  labor- 
saving  machinery  for  doing  its  work. 
The  935  cars  added  to  the  system  since 
1910  have  been  in  each  instance  of  the 
latest  and  most  efficient  type,  some  of 
them  built  in  the  shops  of  the  company 
by  direct  labor,  others  purchased.    Of 
the  original  246  miles  of  track  existing 
in  1910,  162  miles  have  been  renewed, 
about  66  per  cent  of  the  original  track- 
age, and  the  average  age  of  all  the  pres- 
ent tracks  on  the  system  is  very  close  to 
nine  years .     The  number  of  cars  owned 
per  mile  of  track  has  increased  from 
3.9  in  1910  to  5.05  in  1920.     The  fare 
remained  at  3.33  cents  until  December 
15,  1917,  and  since  that  time  has  been 
at  varying  rates,  most  of  the  time 
5.33  cents. 

It  is  apparent  from  the  foregoing 
brief  summary,  without  going  into  de- 
tail, that  the  fare  has  been  low,  the 
service  has  been  high,  and  that  the 
property  has  been  well  kept  up  and 
highly  improved,  under  service  at  cost 
a  real  railway  has  been  developed,  to  an 
extent  so  noticeable  as  to  merit  and  re- 
ceive the  commendation  of  every 
street-railway  man  who  surveys  it,  and 
so  different  from  practice  general  else- 
where that  many  public  addresses  on 
this  subject  have  summarized  it  by 
saying,  "The  railway  has  grown  from  a 
scrap  heap  in  1910  to  the  finest  prop- 
erty in  the  United  States  in  1920." 

ARE  ALL   PARTIES   SATISFIED? 

Another  and  third  way  of  testing 
whether  a  contract  has  carried  out  its 
purpose,  in  addition  to  the  opinion  of 
experts  and  the  actual  facts  hereinbe- 
fore detailed,  is  to  analyze  the  effect 


1921] 


CLEVELiVND— SERVICE-AT-COST 


129 


which  the  contract  has  had  upon  the 
parties  interested,  with  particular  refer- 
ence to  their  conduct  under  and  general 
satisfaction  with  the  contract.     Satis- 
faction with  an  arrangement  by  all  par- 
ties to  it  does  not  always  prove  that  the 
arrangement  is  a  good  one  calculated 
for  their  mutual  advantage,  but  satis- 
faction with  an  arrangement  after  a 
thorough  trial  over  a  period  of  years, 
after  an  exposition  and  public  demon- 
stration of  claimed  defects,  is  proof  of 
the  inherent  soundness  of  the  contract. 
The  Tayler  franchise  has  been  crit- 
icized at  various  times  because  of  the 
so-called  lack  of  incentive  in  it,  and 
possibly  on  lack  of  other  matters,  al- 
though no  critic  has  ever  been  able  to 
frame  a  franchise  which  in  practice  has 
worked  better.     I  have  at  times  made 
the  same  criticism  myself.     But  not- 
withstanding the  criticism,  the  people 
of  Cleveland  are  satisfied.    We  know 
that  to  be  so,  because  it  happened  that 
the  first  period  of  the  grant  expired  on 
May  1,  1919,  and  it  was  necessary  be- 
fore that  time  for  the  city  government 
either  to  renew  the  franchise  for  a 
further  period  of  twenty-five  years, 
thereby  extending  the  expiration  date 
ten  years,  or  to  permit  the  property  to 
continue  in  the  hands  of  the  company 
without  city  control  of  the  service,  or 
to  exercise  itis  option  to  buy  it  and  put 
in  force  municipal  ownership.    A  series 
of  meetings  was  held  in  the  city  council 
chamber  over  a  period  of  six  or  seven 
weeks  by  the  committee  of  council 
having   the   decision   to   make.     The 
matter  was  widely  advertised  in  the 
newspapers,   and   especially  the  fact 
that  the  grant  was  about  to  run  out. 
Nevertheless,  all  the  amendments  that 
were  offered  to  the  grant  as  being  de- 
sirable  were   suggested   by   the   city 
street   railroad   commissioner.     There 
was  no  public  sentiment  manifested  for 
municipal  ovmership,  or  for  any  partic- 
ular change  in  the  grant,  except  on 


the  part  of  a  few  councilmen  and  a  few 
public  officials  who  had  been  in  very 
close  relationship  with  the  railway 
company  and  its  day  to  day  operation. 
No  amendment  was  offered  by  any 
civic  society  of  Cleveland,  of  which 
there  are  many  and  active,  nor  any 
newspaper,  nor  by  the  chamber  of 
commerce,  or  any  of  the  various  clubs 
interested  in  public  matters.  The  rail- 
way company  refused  to  accept  the 
amendments,  said  that  it  was  satisfied 
with  the  franchise  as  it  stood.  It  be- 
came immediately  evident  that  the 
public  also  was  satisfied  with  the  fran- 
chise and  the  service  under  it.  The 
result  was  that  the  council  renewed  the 
agreement  in  identical  terms  for  a 
further  period,  and  we  are  now  operat- 
ing thereunder. 

THE  SIX  PER  CENT  FIXED  RETURN 

There  is  one  serious  problem  now 
pending,  arising  in  connection  with  the 
fixed  return  of  6  per  cent  for  the  stock- 
holders,— a  problem  which  is  entirely 
likely  to  face  the  operators  of  the  vari- 
ous new  service-at-cost  franchises,  now 
being  adopted.  It  is  the  difficulty  of 
finding  new  money  with  which  to  fi- 
nance extensions,  betterments  and  per- 
manent improvements.  Extensions  in 
Cleveland  have  always  been  financed 
by  the  sale  of  new  stock.  For  more 
than  a  year  it  has  been  impossible  to 
sell  Cleveland  Railway  6  per  cent  stock 
at  par  in  Cleveland,  and  the  franchise 
forbids  its  being  sold  at  less  than  par. 
The  fate  of  all  public  utility  stocks  has 
.been  largely  reflected  in  the  market  on 
Cleveland  Railway  stock,  through  no 
fault  of  its  own.  The  management  of 
the  railway  made  an  effort  to  raise  the 
dividend  rate  on  all  their  stock  to  7 
per  cent,  and  failed  at  a  popular  vote. 
Although  extensions  are  needed  in 
Cleveland,  the  people  evidently  thought 
the  7  per  cent  remedy  too  drastic  and 


NATIONAL  MUNICIPAL  REVIEW  SUPPLEMENT         [Feb. 


•I 


130 

far-reaching.  So  for  the  present  we 
are  standing  still— just  finishing  the 
programme  laid  out  a  year  and  a  half 
ago.  Many  solutions  for  the  future 
needs  of  the  company  and  city  have 
been  suggested  and  debated,  and  I  have 
no  doubt  the  problem  will  be  worked 
out  satisfactorily  in  a  mutual  spirit  of 
co-operation,  as  have  so  many  of  our 
previous  difficulties. 

THE   SUCCESS  EXPLAINED 

The  question  now  arises,  What  is  the 
reason  for  the  obvious  success  of  this 
plan?    There  are  many  reasons.     The 
low  capitaUzation  at  which  the  railway 
was  taken  over  has  had  some  effect,  of 
course,  but  that  effect  has  been  very 
largely  overrated.    The  added  expense 
of  a  few  millions  to  its  aggregate  cap- 
ital value,  with  a  return  of  6  per  cent 
thereon,  distributed  among  the  number 
of  fares  paid  would  have  made  an  m- 
crease  in  the  rate  of  fare  so  small  as  to 
be  hardly   noticeable.    It   would   be 
expressed  in  tenths  of  a  cent,  less  than 
a  mill  a  ride.    At  the  beginning  of  the 
grant,  an  addition  of  ten  miUion  dollars 
to  the  capital  value  would  have  made  a 
difference  of  only  three  tenths  cent  in 
each  fare  paid,  and  this,  of  course,would 
have  decreased  each  year  since.     The 
low  capitalization  was /ar  more  efeclive 
in  developing  public  confidence  in  the 
honesty  of  the  management  and  in  the 
honesty  of  the  arrangement  than  m 
any  financial  way.    The  whole  secret 
of  the  success  of  the  scheme  has  been 
the  admirable  combination  of  efficient 
and  jealous  management  of  the  part  of 
the  company  and  its  officials,  of  close 
municipal  supervision,  of  harmony  be- 
tween the  company  and  the  public,  of 
the  confidence  which  the  pubUc  has  in 
the  arrangement,  and  the  ultimate  fact 
resulting  from  all  of  these,  that  the 
company  is  financially  strong,  and  able, 
up  to  a  short  time  ago,  to  market  any 


amount  of  its  securities  with  which  to 
carry  out  the  object  of  the  street  rail- 
way. All  of  these  have  been  deciding 
factors  in  the  success  of  the  plan. 

THE   city's   part 

The  city,  through  the  council  and 
the  commissioner's  office,  also  guards 
its  rights  carefully.     It  maintains   a 
complete  department  for  the  super- 
vision of  the  company's  expenses  of 
all  kinds.    It  prescribes  the  quality 
and  quantity  of  service.    In  the  com- 
missioner's office  a  traffic  department 
maintains,  through  a  large  force  of  in- 
spectors,  a  continuous  check  of^^® 
traffic  loads  on  the  various  lines  of  the 
city,  and  from  time  to  time  makes 
changes  in  the  headways,  in  the  run- 
ning time,  and  in  the  cars  on  the  vari- 
ous lines  to  more  closely  balance  the 
service  rendered  with  the  service  re- 
quired.   It  makes  all  the  studies  and 
investigations    for    determining    any 
changes   necessary.    The   results   are 
tabulated,  and  graphs  are  drawn  show- 
ing the  necessity  or  non-necessity  for 
any  changes.    Changes  are  being  made 
almost  daily  by  orders  to  the  company 
to  put  in  force  new  headways  and  new 
schedules.    In  so  doing  the  commis- 
sioner is  able  to  tell  from  day  to  day 
whether  the  schedules  which  he  pre- 
scribes are  being  run,  and  to  see  that 
the  company  does  no  more  nor  less 
than  run  the  service  prescribed.    The 
traffic    department    also    makes    the 
seasonal  changes  due  to  the  closing  of 
parks  and  the  opening  and  closing  of 
factories,  makes  the  changes  in  places 
of  stopping  necessitated  by  new  condi- 
tions, makes  changes  in  routes  neces- 
sary to  relieve  congestion  and  to  speed 
up  service,  and  also  advises  with  the 
operating  department  daily  in  the  col- 
lection of  fares,  loading  and  unloading 
of  passengers,  the  stationing  of  men  to 
sell  transfers  outside  the  cars,  the  pre- 


1921] 


CLEVELAND— SERVICE-AT-COST 


131 


payment  areas,  and  all  the  details 
which  make  for  excellency  of  service. 
The  street  railroad  commissioner's 
office,  also,  through  its  engineering 
department,  keeps  close  supervision 
over  the  cost  of  improvements,  renew- 
als and  ordinary  repairs,  and  approves 
them  in  advance  of  expenditures.  Not 
a  bottle  of  ink  is  bought  without  the 
city  passing  on  it  and  approving  it 
first.  In  those  matters  we  not  only 
authorize  and  supervise  the  railway 
company  from  day  to  day,  but  we  also 
advise  with  its  officers  and  suggest 
changes  and  improvements.  We  main- 
tain a  day  to  day  continuous  audit. 

the  railway's  part 

The  railway  officials  have  also  had  at 
heart  not  only  the  preservation  and 
development  of  the  property,  but  pride 
in  themselves  as  successful  managers. 
They  have  co-operated  in  every  way  in 
increasing  the  efficiency  of  the  service. 
They  have  largely  initiated  a  great 
many  of  the  reforms  which  have  made 
Cleveland  street-car  service  a  model  of 
the  country.  They  have  adopted  and 
carried  out  many  of  the  suggestions 
made  by  the  city.  The  result  has  been 
the  employment  of  almost  every  new 
idea  in  street-railway  operation,  usually 
some  years  in  advance  of  the  rest  of  the 
country,  such  as  the  skip-stop,  the 
speeding  up  of  schedules,  short-routing, 
cross-town  fines,  prepayment  areas, 
pay-enter  and  pay-as-you-leave  fare 
collection,  the  most  modern — the-pay- 
as-you-pass — street  car;  the  purchasing 
and  distribution  of  power  instead  of 
costly  generating  plants;  modern  car 
shops,  car  stations  and  automatic  power 
sub-stations;  scientific  and  exactly 
sufficient  schedules  of  service,  the  last 
word  in  maintenance-of-way  equip- 
ment, materials  and  yards,  labor-sav- 
ing machinery  of  every  kind,  the  scien- 
tific training  of  employes  in  a  separate 


school  and  department  equipped  with 
machinery  and  instructors  for  that  pur- 
pose, careful  and  strict  discipline  of  the 
employes;  in  short,  most  of  the  ad- 
vancements and  improvements  in 
street-railway  management  of  the  last 
ten  years  have  originated  or  been  tried 
in  Cleveland.  The  peculiarly  close 
combination  of  company  management 
and  city  supervision  has  enabled  Cleve- 
land to  devise  and  put  in  force  every 
possible  economy  which  tends  to 
efficiency. 

DOES  THE  PLAN  LACK  INCENTIVE? 

I  think  that  most  of  the  criticism  of 
the  service-at-cost  plan  as  developed 
in  Cleveland  in  the  last  ten  years,  as  to 
the  lack  of  incentive,  is  really  directed 
at  the  conditions  of  the  franchise  and 
not  at  the  working  out  of  the  same  as 
shown  in  actual  operation.  Cleveland 
is  not  under  absentee  ownership. 
Clevelanders  own  the  company.  The 
management  in  Cleveland  are  all 
heavy  stockholders  in  the  company 
and  are  directly  interested;  therefore 
it  is  not  really  management  of  paid 
service  alone,  but  it  is  a  management 
largely  by  stockholders  themselves. 
Some  of  its  success  is  due  to  that.  In 
this  management  they  have  also  the 
benefit  of  daily  counsel  and  criticism, 
not  monthly  or  annually  such  as  is 
granted  by  public  state  commissions. 
Nor  has  the  criticism  been  selfish, 
partisan  or  political  criticism,  such  as 
has  so  often  developed  at  the  hands  of 
political  bodies  and  newspapers  in 
other  cities. 

TOM    JOHNSON    OPPOSED    THE    SLIDINO 

SCALE 

In  the  meetings  in  March,  1909, 
between  Tom  L.  Johnson,  mayor  of 
Cleveland,  and  Horace  E.  Andrews, 
president  of  the  Cleveland  Railway 


II 


132 


NATIONAL  MUNICIPAL  REVIEW  SUPPLEMENT         [Feb. 


Company,  and  various  councilmen,  one 
of  the  councilmen  suggested  a  slidmg 
scale   of   interest,   namely,   that   the 
lower  the  rate  of  fare  the  more  mterest 
could  be  paid  on  the  investment.    He 
said  he  thought  there  would  be  an 
incentive  then  for   the   stockholders   to 
make  the  fare  as  low  as  possible,  a  saymg 
which  sounds  very  familiar  now  after 
eleven   years.     Mayor   Johnson   then 
replied,  "And  also  quite  an  incentive 
to  skimp  the  service;  wouldn  t  it.'' 
Mr.  Andrews  suggested  the  well-knomi 
gas  company  arrangement  in  England, 
and  thought  that  it  would  be  a  fairly 
good  arrangement,  but  Judge  Tayler 
was  firmly   of  the  opinion  that  the 
company  should  have  only  a  fair  return 
on  the  money  for  the  privileges  granted 
by  the  city,  and  that  it  should  not  be 
subject  to  the  hazards  of  operation. 
He  was  of  the  opinion  that  the  railway 
company  was  entitled  to  earn  only  a 
fair  return  for  the  use  of  the  streets, 
and  that  if  by  ingenuity  and  econom- 
ical devices  adopted  by  the  operators  a 
re4uction  in  fare  was  accomplished, 
and  if  thereby  they  obtained  more 
than  a  fair  return  on  the  money,  or, 
as  he  expressed  it,  an  abnormal  rate  on 
their  investment,  there  was  something 
wrong  somewhere. 

It  seemed  to  the  judge  that  it  was 
fundamentally  wrong  to  pay  a  man  a 
bonus  for  doing  that  for  which  his 
salary  is  supposed  to  compensate  him; 
that  a  bonus  could  not  be  a  legitimate 
part  of  the  cost,  and  that,  therefore, 
this  sort  of  an  arrangement  was  service 
at  m(yre  than  cost;  that  the  people  are 
entitled,  for  the  salary  that  they  pay  to 
the  officers  of  the  railway,  to  intelligent 
and  efficient  management,   and  that 
they  ought  not  to  be  taxed  any  more. 
My  own  notion  is  that  the  idea  is  not 
only  fundamentally  wrong,  but  that 
practically  it  would  not  work  because 
it  creates  an  incentive  on  the  part  of 
the  railway  company  to  keep  down 


their  expenses  by  skimping  the  service. 
Under  the  present  service-at-cost  plan 
the  company  has  no  desire  and  no 
incentive  to  skimp  the  service.    They 
do  not  interfere  in  the  slightest  way 
with  the  full  latitude  of  the  city  m 
exerting  its  power,   and  there  is  no 
desire  on  their  part  to  do  so,  because  it 
makes  no  difference  to  them,  within 
the  limits  of  their  power  to  earn  6  per 
cent,  how  much  or  how  little  service  is 
run.    But  I  believe  any  temptation  of 
an  added  dividend  before  their  eyes, 
resulting  from  a  reduction  of  cost  which 
would  make  it  advisable  for  the  com- 
pany to  reduce  its  operating  expense, 
would  create  a  tendency  on  its  part  to 
encroach  on  the  city's  prerogative  as 
to  service,  by  hampering  and  reducing 
the  service  in  the  many  small  ways  by 
which  they  could  do  so  without  being 
caught  by  even  an  elaborate  system 
of  watching,  and  to  render  a  cheaper 
and  more  unsatisfactory  service  even 
while  ostensibly  complying  with  the 
city's  order.    Such  an  objective  is  bad. 
From  the  stockholder's  standpomt 
it  is  an  incentive  for  the  management 
not  to  keep  the  property  up,  because 
the  lower  the  maintenance  charges,  of 
course,  the  lower  the  rate  of  fare  and  the 
higher  the  return  to  the  stockholders. 
It  is  also  an  incentive  to  keep  down  the 
maintenance  by  increasing  the  capi- 
talization  by    charging    repairs    and 
replacements  to  capital,  which  could 
easily  be  done,  thereby  tending  to  make 
the  enterprise  top-heavy  and  reduce 
the   physical   value    of   the    security 
which    the    stockholders   have.     This 
same  thing  would  strike  largely  at  the 
service  given  the  car  riders,  because 
the  first  requisite  of  good  service  is  a 
high  class  raih-oad,  sufficiently  mam- 
tained.     Further  than  that,  it  increases 
the  price  which  the  city  would  have  to 
pay  on  purchase  and  reduces  the  con- 
sideration for  the  price. 
A  sliding  scale  of  return  based  on  a 


1921] 


CLEVELAND— SERVICE-AT-COST 


133 


sliding  scale  of  fares,  in  my  judgment 
is  also  theoretically  wrong,  because  the 
stockholders  of  the  company  are  com- 
pensated by  dividends,  the  manage- 
ment of  the  company  is  compensated 
by  salary;  in  other  words,  the  price  of 
money  is  one  thing  and  the  price  of 
service  is  another.  They  have  no 
immediate  necessary  connection.  But 
if  you  are  going  to  vary  the  price  of 
money  which  the  stockholders  put 
into  the  company  in  the  ratio  of  the 
rate  of  fare,  or,  in  other  words,  the  cost 
of  service,  the  law  of  economics  would, 
it  seems  to  me,  command  the  reverse 
of  the  suggested  arrangement.  I  have 
heard  it  argued  by  financial  experts 
(especially  in  the  last  arbitration)  that 
there  is  no  connection  between  a  fair 
return  on  money,  in  other  words,  the 
price  of  the  same,  and  the  price  of 
other  commodities.  Others  have  ar- 
gued that  they  rise  and  fall  together.  If 
there  is  any  truth  in  the  last  argument 
that  the  price  of  money  goes  down  and 
up  as  the  price  of  commodities  goes 
down  and  goes  up,  then  as  the  cost  of 
labor  and  materials  used  in  the  street 
railways,  which  largely  determines  the 
rate  of  fare,  goes  down,  the  return  on 
the  money  invested  should  not  go  up. 
But,  under  the  present  incentive 
franchises,  the  return  to  the  stock- 
holders does  go  up  as  the  fare  goes 
down,  instead  of  going  down  as  it 
should  if  the  above  rule  is  correct. 

It  is  also  likely  to  be  a  bad  arrange- 
ment from  a  practical  standpoint  for 
the  public.  According  to  the  judg- 
ment of  almost  everyone  we  have 
reached  the  peak  of  high  prices .  There 
is  bound  to  be  a  decrease  in  the  next 
five  or  ten  years.  They  may  not  drop 
to  the  point  at  which  they  were  in 
1914.  They  may  stay  at  a  slightly 
higher  level.  After  the  Civil  war  it 
took  from  ten  to  fifteen  years  to  bring 
the  prices  of  everything  down  to  where 
they  were  before  the  war.    The  same 


condition  obtained  after  the  Napoleonic 
wars  in  Europe.  If  history  repeats 
itself,  by  1930  we  shall  be  back  where 
we  were  in  1914.  But  even  if  that  is 
not  so,  it  is  admitted  that  prices  must 
decrease  even  if  they  do  not  come  to 
the  low  level  of  1914.  If  they  do 
decrease,  street-railway  fares  must 
and  should  go  down.  But  under  the 
sliding  scale,  what  is  the  result  from 
the  public's  standpoint?  As  the  costs 
go  down,  the  expense  of  operating  is 
going  up  by  the  extra  amount  which 
the  stockholders  secure,  which  tends 
again  to  keep  the  fares  up. 

The  fare  in  the  last  five  years  went 
up  largely  without  the  fault  of  the 
railway  companies  of  the  country,  due 
to  economic  conditions,  and  I  am  satis- 
fied that,  without  their  action,  without 
any  credit  to  them,  they  will,  by  reason 
,  of  the  same  law,  go  down  in  the  next 
five  to  ten  years.  But  even  if  you  grant 
that  all  these  conclusions  are  wrong,  I 
think  that  any  scheme  of  incentive  so  far 
suggested  is  open  to  the  criticism  of 
lack  of  effectiveness,  because  of  the 
remoteness  from  and  lack  of  direct 
application  to  the  actual  executives.  I 
cannot  help  thinking  from  my  experi- 
ence of  service  at  cost,  from  my  knowl- 
edge of  what  has  happened  in  the  last 
five  years,  that  after  all  the  real  in- 
centive to  efficient  management  is  to 
give  the  man  at  the  wheel,  the  man  who 
actually  operates,  sufficient  compensa- 
tion to  keep  his  best  interest  in  his 
work,  and  then  to  have  an  efficient  city 
administration  to  act  as  the  watchdog, 
to  criticize,  advise  and  sit  on  his  neck 
day  by  day,  as  is  done  in  Cleveland,  to 
see  that  he  earns  his  salary. 

To  recur  to  the  question  originally 
asked  Panacea  or  Nostrum?  We  offer 
the  Cleveland  franchise,  as  a  practical 
success,  a  sufficient  remedy  under  its 
circumstances.  Experience  in  Cleve- 
land shows,  in  my  judgment,  that 
service  at  cost  is  not  perfection,  neither 


M 


V- 


134  NATIONAL  MUNICIPAL  REVIEW  SUPPLEMENT         [Feb. 


is  it  a  nostrum  or  quack  medicine, 
that  whether  it  is  a  panacea  or  not, 
or  how  closely  it  approaches  being  a 
panacea,  depends  partly  upon  the 
franchise,  but  much  more  upon  the 
development  of  it,  upon  the  people 
who  are  charged  with  executing  it,  in 


whose  hands  it  rests,  and  upon  the 
public,  who,  if  they  have  confidence  in 
the  arrangement,  will  make  it  a  suc- 
cess or  a  failure.  Many  criticisms  of 
the  Cleveland  plan  can  be  made,  per- 
haps justly,  but,  as  for  Cleveland, 
Cleveland  is  satisfied. 


SERVICE  AT  COST  VERSUS  MUNICIPAL 

OWNERSHIP 

SEATTLE'S  EXPERIENCE 

BY  C.  M.  FASSETT 

Former  Mayor  of  Spokane,  Staff  Member  American  City  Consultants 


The  latest  Imk   in   the  constantly 
tightening  chair  of  public  regulation  of 
utiUties  is  found  in  the  service-at-cost 
franchise.    Beginning  with  the  passage 
of   the   interstate   commerce  law  by 
congress  in  1887,  pubUc  regulation  has 
steadily,  if  slowly,  increased  the  power 
of  government  over  public  utility  cor- 
porations, gradually  lifting  them  out 
of  the  class  of  private  business  which 
may  be  operated  to  suit  the  purpose  of 
its  owners,  and  enforcing  in  increasing 
measure  a  consideration  of  the  needs 
and  the  purses  of  their  patrons,  the 
pubUc.   As  in  the  case  of  the  steam- 
raihoads,   this  progressive  regulative 
effort  in  the  pubUc  utiUty  business  has 
grown  up  in  response  to  the  demand  for 
the  abolition  and  curtailment  of  cer- 
tain specific  practices  of  the  owners 
and   managers   of   utihty   properties, 
which   an   awakening   sentiment   had 
condemned  as  contrary  to  the  interests 
of  the  public. 

PRIVATE  MISMANAGEMENT 

Only  in  recent  years  has  it  been 
recognized  that  a  public  utihty  is  a 
natural  monopoly.  In  fact  when  utiU- 
ties were  unregulated,  the  only  hope  of 


the  consumer  for  reasonable  rates  and 
tolerable  service  was  in  competition. 
The  great  municipal  utilities  which  op- 
erate in  the  streets  of  American  cities 
to-day  are  almost  without  exception, 
consolidations  of  companies  which  were 
originally  started  or  soon  developed  as 
competitors.     The  growth   of  urban 
population  was  extremely  rapid,  but 
the  demand  for  utility  service  was  in 
greater  ratio.    In  the  decade  1900  to 
1910   population   in   the   continental 
United  States  increased  21  per  cent, 
while  the  number  of  passengers  carried 
one  mile  by  the  steam  raihoads  more 
than  doubled,  and  a  Uke  condition  pre- 
vailed in  municipal  utihties.    The  pio- 
neers in  the  utiUty  business  soon  found 
that  competition  was  the  only  inter- 
ference with  their  profits,  and  consoli- 
dation  of   the   competing   companies 
was  the  logical  answer. 

With  their  utilities  consolidated  the 
pubUc  soon  felt  the  pressure  of  rate 
increases  and  service  deterioration, 
complaints  began  to  find  their  way 
into  legislative  bodies,  and  public 
regulation  began  to  be  attempted. 
Consolidation  had  not  increased  physi- 
cal assets  but  had  greatly  increased 
capitalization,  for  not  only  had  enor- 


1921] 


COST  VERSUS  MUNICIPAL  OWNERSHIP 


135 


mous  prices  been  paid  for  the  control 
of  competing  companies,  but  large 
bonuses  went  to  pay  the  promoters 
and  financiers  who  had  brought  the 
consolidation  about.  Then  if  the  new 
concern  showed  profits  above  a  fair 
dividend,  further  issues  of  stock  ap- 
peared, the  total  capitalization  being 
based  upon  the  earning  power  of  the 
utility  in  its  years  of  greatest  prosper- 
ity. It  was  not  considered  good  busi- 
ness to  apply  excess  profits  to  debt  re- 
tirement, nor  to  large  dividends  on 
stock  already  issued.  Either  of  these 
practices,  if  they  became  known, 
would  have  been  the  basis  for  a  public 
demand  for  reduced  rates  or  better 
service.  Depreciation  reserves  were 
neglected,  or  if  they  were  set  aside  at 
all  it  was  merely  as  a  ledger  account, 
and  the  actual  money  was  used  for 
dividends  on  the  heavily  watered 
stock.  The  rates  were  all  the  traflSc 
would  bear  and  the  service  was  as  lit- 
tle as  could  be  given  without  too  much 
public  protest.  Growing  cities  suf- 
fered for  much  needed  extensions  of 
utility  service  which  were  not  made 
because  they  would  not  show  an  imme- 
diate profit.  Street  cars  were  designed 
to  carry  the  greatest  number  of  stand- 
ing passengers,  and  the  arrogance  of 
the  utility  magnate  was  reflected  in 
the  conduct  of  his  lowest  employe. 
His  responsibiUty  was  to  his  stock- 
holders.   His  goal  was  more  profits. 

In  order  to  ward  off  further  compe- 
tition and  to  defend  themselves  from 
attack,  the  utilities  were  forced  to 
maintain  lobbies  in  constant  attend- 
ance upon  legislative  bodies,  and  to 
corrupt  legislatures  and  city  councils, 
and  the  story  of  these  activities  fur- 
nishes one  of  the  saddest  chapters  in 
the  history  of  municipal  government 
in  America.  Extensive  and  expensive 
propaganda  was  used  to  influence  pub- 
lic oflicials  and  leading  citizens  against 


public  ownership  and  in  favor  of  in- 
creases in  rates,  and  the  wells  of  public 
opinion  were  persistently  and  system- 
atically poisoned. 

Occasionally  there  has  existed  an 
honestly  managed  and  efficiently  op- 
erated public  utility  in  private  owner- 
ship, and  to  these  I  apologize  for  the 
company  in  which  I  have  found  them. 
Of  all  the  different  utilities,  street  rail- 
way interests  have  been  the  chief  of- 
fenders. Ten  years  ago  a  proposal  to 
guarantee  them  net  earnings  of  6  per 
cent  on  the  actual  value  of  their  prop- 
erties would  have  met  with  derision; 
now  it  is  the  straw  which  they  hope 
will  save  them  from  drowning.  Ten 
years  ago  one  might  search  the  files  of 
their  trade  journals  in  vain  for  ad- 
vocacy of  public  ownership;  now  you 
find  it  on  every  page.  Ten  years  ago 
the  proposal  that  a  representative  of 
the  public  should  be  admitted  to  the 
counsels  of  the  management  of  the 
business  would  have  been  intolerable; 
to-day  it  has  become  an  accepted  part 
of  the  regulative  scheme. 

Regulation  began  with  the  imposi- 
tion of  a  franchise  tax,  usually  based 
on  gross  earnings.  This  was  wrong  in 
principle  in  that  it  took  revenue  from 
citizens  in  proportion  to  their  use  of 
the  utility,  for  the  benefit  of  citizens  in 
proportion  to  their  taxes;  it  was  justi- 
fied only  because  we  had  not  learned 
any  better.  We  knew  that  the  profits 
of  the  utilities  were  too  great,  and 
were  groping  to  find  the  proper  way  in 
which  to  curtail  them.  The  sharp  ad- 
vance in  the  cost  of  labor  and  materials 
brought  about  by  the  war,  the  com- 
petition of  the  automobile  and  jitney, 
and  past  methods  of  frenzied  finance 
by  which  the  street  railways  were  held 
at  the  verge  of  bankruptcy,  have  now 
forced  them  into  a  desperate  situation. 
Increased  fares  are  a  palliative  which  is 
Ukely  only  to  postpone  the  crisis. 


136 


NATIONAL  MUNICIPAL  REVIEW  SUPPLEMENT         [Feb. 


1921] 


COST  VERSUS  MUNICIPAL  OWNERSHIP 


137 


III 


THE   EFFICACY   OF   SERVICE   AT   COST 

Two  alternatives  will  save  them 
from  destruction:  municipal  owner- 
ship or  service  at  cost.  Both  are  now 
being  tried  and  we  will  be  better  able 
to  judge  their  comparative  merit  ten 
years  from  now  than  we  are  to-day. 
But  the  situation  presses. 

The  modern  service-at-cost  fran- 
chise puts  an  end  to  the  evil  practices 
of  utility  management  which  I  have 
already  outlined.  It  restrains  finan- 
cial sky  rocketing,  gives  a  reasonable 
control  over  management,  provides  for 
extensions  and  betterments,  recog- 
nizes the  street  railway  business  as  a 
natiu-al  monopoly,  gives  the  public 
a  little  authority  in  the  directorate,  en- 
forces adequate  accounting,  and  re- 
tains to  at  least  a  small  extent  the  al- 
leged advantage  of  leaving  the  business 
in  private  management.  But  only  to 
a  small  extent.  The  dominating  mo- 
tive of  private  ownership  is  a  desire  for 
profit,  and  business  undertakings  are 
attractive  to  business  men  largely  in 
proportion  to  the  chances  of  earnings 
beyond  the  legal  rate  of  interest.  If 
they  can  only  earn  6  or  7  per  cent  they 
might  as  well  invest  in  mortgage  loans 
and  go  on  a  camping  trip.  Just  now, 
however,  the  question  with  them  is  not 
future  earnings,  but  the  salvaging  of 
the  miUions  of  capital  which  is  threat- 
ened with  obliteration. 

The  crucial  point  in  a  service-at-cost 
franchise  is  the  valuation  of  the  prop- 
erty of  the  utility,  and  this  is  true  also 
of  proposals  for  municipal  ownership. 
Here  is  a  decaying  business,  but  one 
which  it  is  essential  to  the  public  good 
to  keep  going,  at  least  until  its  suc- 
cessor has  been  developed.  Here  is  a 
property  with  securities  outstanding 
far  in  excess  of  any  reasonable  estimate 
of  its  real  value.  It  is  in  much  the 
same  condition  as  a  manufacturing 
concern  whose  processes  are  obsolete 


and  whose  product  is  losing  hold  on 
public  favor.  What  is  it  worth  .?*  It  is 
not  diflScult  for  engineers  to  arrive  at 
the  value  of  property  of  a  going  con- 
cern, one  with  a  future,  but  to  fix  a  fair 
value  of  a  street  railway  at  the  present 
time  is  a  task  which  staggers  the  ablest 
expert  in  the  business.  A  trolley  pole 
may  be  worth  what  it  costs  as  a  trolley 
pole,  but  what  if  it  is  only  an  encum- 
brance to  the  street?  Are  we  taking 
an  unjust  advantage  in  offering  its 
owner  its  junk  value?  The  American 
public  wants  to  be  fair  to  the  public 
utility  interests,  but  it  does  not  want 
to  be  cheated.  It  does  not  want  to  buy 
a  work  horse  and  get  a  dead  carcass 
which  has  no  value  except  the  hide. 

DIFFICULTIES  IN  MUNICIPAL  OWNERSHIP 

Some  cities  have  determined  that 
they  will  themselves  own  and  operate 
their  street  transportation  business  and 
are  having  a  very  interesting  time. 
Many  difficulties  must  be  met  and 
overcome.  When  the  most  of  our  state 
constitutions  were  written  it  was  con- 
sidered unsafe  to  allow  much  freedom 
to  city  governments.  Honest  men 
feared  the  entrance  of  the  political  unit 
into  business,  even  the  business  of  sup- 
plying the  collective  needs  of  its  citi- 
zens, and  the  selfish  interest  of  the  util- 
ities had  an  easy  victory  in  denying 
the  cities  the  right,  or  closing  the 
avenues  of  opportunity,  to  engage  in 
other  businesses  than  those  which  did 
not  offer  profit  to  private  operation. 
In  fixing  constitutional  debt  limits^ 
even  in  some  so-called  home  rule  states, 
the  full  debt  limit  could  not  be  reached 
excepting  for  water  supplies  and  sew- 
ers, or  less  frequently,  for  sewers, 
water  and  light  plants.  And  behind 
the  constitution  stood  the  legislature, 
usually  dominated  by  a  combination  of 
interests  in  which  the  utility  corpora- 
tions were  fully  protected. 


y 


> 


But  even  if  the  law  gave  authority 
and  opportunity,  the  very  structure  of 
city  government,  up  to  the  last  ten  or 
fifteen  years,  was  not  adapted  to  the 
new    proposal    of    public    ownership. 
The  public  mind  was  not  open  to  such 
business   undertakings  nor  were  the 
usual  public  officials  competent  to  op- 
erate them  or  willing  to  undertake  the 
new  burden.    A  new  light  is  dawning 
upon  American  municipal  life,  but  the 
dawn  comes  slowly,  and  the  greater 
number  of  cities  are  to-day  in  the  con- 
dition I  have  just  outlined.    The  elec- 
torate is  heedless,  the  government  is 
cumbersome  and  unresponsive,  the  of- 
ficials are  frequently  changing,  poorly 
paid  and  unexpert,  employes  receive 
appointment  and  hold  jobs  on  account 
of  election  day  services,   wages   and 
standards  of  efficiency  are  low,  and 
"politics"  is  not  the  science  of  govern- 
ment   but    a   disreputable   game   for 
spoils.    For  such  a  city  public  owner- 
ship of  utiHties  is  unthinkable  as  a 
hopeful  business  undertaking.    Public 
regulation  of  privately  owned  utilities, 
having    as    its    latest    development    the 
service-at-cost  franchise,  is  as  far  as  such 
a  city  should  attempt  to  go. 

But  no  city  government  is  as  good  or 
as  bad  as  it  might  be.  Extreme  ex- 
amples are  rare.  Cities  are  Uke  the 
human  beings  which  build  them  and 
inhabit  them,  containing  much  good  in 
the  worst,  and  some  evil  in  the  bsst  of 
them.  Bad  impulses,  in  a  city  govern- 
ment as  in  the  individual,  are  not  only 
immoral,  they  are  unintelligent,  and 
when  that  fact  is  discovered  and  both 
reason  and  moral  impulse  get  to  work 
there  is  sure  to  be  a  change  for  the 
better.  The  decision  between  service 
at  cost  and  municipal  ownership  in 
any  city  cannot  be  made  on  the  basis 
of  right  and  wrong;  it  must  be  influ- 
enced by  local  conditions,  and  par- 
ticularly by  the  character  of  the  city 
government. 


SEATTLE   ACTS  HASTILY 


Seattle  has  chosen  to  own  and  oper- 
ate its  street  railways;  it  took  them 
over  by  purchase  on  April  1,  1919,  at 
a  price  of  fifteen  miUions,  paying  for 
them  with  utility  bonds,  pledging  the 
first  application  of  the  gross  earnings 
to  the  payment  of  the  interest  and  the 
gradual  retirement  of  the  principal  in 
the  term  of  twenty  years.    Seattle  is  a 
thriving  city  of  315,000  population. 
Its    growth    during    the   last   decade 
was  33  per  cent.     Its  population  con- 
tains an  imusually  large  proportion  of 
intelligent,     progressive,     wide-awake 
Americans.     Its    government    is    the 
mayor-council  form,  the  voters  having 
defeated  a  city  manager  charter  a  few 
years  ago.     In  addition  to  the  recent 
purchase  of  its  street  railways  it  has 
owned  and  operated  for  many  years  its 
water  works  and  an  electric  light  and 
power  plant,  both  of  which  have  been 
very  well  managed  and  successful,  and 
its  Port  district  has  splendidly  equipped 
ocean  terminals,  warehouses,  grain  ele- 
vators and  cold  storage  plants,  all  pub- 
licly owned  and  operated.    The  citizens 
are  proud  of  their  municipal  under- 
takings,   and   when   the   question   of 
buying  the  street  railways  came  up  in 
November,  1918,  they  voted  for  the 
purchase  by  about  three  and  a  half  to 
one. 

The  deal  was  a  hasty  one  and  did 
not  allow  time  for  a  thoroughgoing 
valuation  of  the  property,  but  a  valua- 
tion by  accountants  of  the  Public 
Service  Commission,  begun  but  not 
completed,  showed  it  to  be  worth  in 
the  neighborhood  of  the  purchase  price, 
and  the  city  officials,  in  a  statement  to 
the  voters  just  previous  to  the  election, 
gave  its  value  as  $16,102,946.  I  am 
inclined  to  beUeve  that,  considering  the 
state  of  the  business  at  that  time  and 
the  growing  difficulties  in  which  trac- 
tion  interests   all   over   the   country 


I 


138  NATIONAL  MUNICIPAL  REVIEW  SUPPLEMENT         [Feb. 

found  themselves,  the  price  paid  was 
too  high,  but  I  approve  the  judgment 
of  one  member  of  the  Seattle  city  coun- 
cil, quoted  as  asserting  that  he  could 
not  see  that  the  lines  exceed  eight  mil- 
lions in  value,  but  that  he  believed  the 
elimination  of  the  traction  company 
from  local  affairs  was  worth  the  dif- 
ference and  he  would  vote  for  the  pur- 
chase. The  price  was  probably  lower 
than  any  valuation  which  could  have 
been  agreed  upon  as  a  basis  for  a  serv- 
ice-at-cost  franchise. 


1921] 


COST  VERSUS  MUNICIPAL  OWNERSHIP 


1S9 


THE  COURSE  OF  MUNICIPAL  OPERATION 
IN   SEATTLE 

Had  the  railways  remained  in  the 
hands  of  their  former  owners,  a  raise  in 
fares  was  imminent,  and  fares  had  been 
advanced  in  all  other  larger  cities  in 
the  state.  The  Seattle  railways  under 
municipal  ownership  are  burdened  with 
a  heavy  obligation  of  debt  liquidation 
which  private  ownership  would  not 
have  entailed,  but  the  new  manage- 
ment, instead  of  raising  rates  at  once, 
allowed  their  optimism  to  get  the  bet- 
ter of  their  judgment,  asserting  that 
their  new  utility  would  meet  its  obU- 
gations  with  a  five-cent  fare.  Their 
system  is  virtually  capitaUzed  at 
$17,215,000,  of  which  $16,440,000  is 
represented  by  utility  bonds  which  are 
a  first  lien  upon  receipts,  and  not  only 
must  they  pay  5  per  cent  interest  on 
this  sum,  but  they  must  also  meet  the 
principal  in  a  series  of  annual  pay- 
ments of  $833,000,  beginning  March  1, 

1921. 

It  soon  became  evident  that  in  spite 
of  a  number  of  economies,  fares  would 
have  to  be  advanced,  and  while  this 
subject  was  being  discussed  a  munici- 
pal election  came  on.  The  manage- 
ment of  the  street  railways  was  the 
chief  issue  and  the  result  was  a  change 
of  administration.  The  report  of  op- 
eration issued  at  the  close  of  1919, 


covering  the  first  nine  months  of  mu- 
nicipal ownership,  showed  that  with  a 
rather  Uberal  allowance  for  deprecia- 
tion the  lines  had  run  behind  $517,000. 
The  cash  fare  was  raised  to  ten  cents,^ 
with  metal  tokens  sold  on  the  cars  at 
four  for  a  quarter.  The  mayor  in 
signing  the  ordinance  said  he  believed 
the  advance  was  not  suflScient.  Wages 
of  carmen  have  advanced  from  64  to  80 
per  cent  over  those  paid  in  1918,  under 
private  ownership.  The  gross  loss  for 
the  first  four  months  of  1920  including 
depreciation,  was  $468,000.  There  are 
rumors  afloat  that  illegitimate  means 
were  used  to  influence  the  sale  and  the 
city  council,  at  the  request  of  the  new 
mayor,  has  voted  $10,000  as  a  fund  for 
probing  the  transaction. 

It  is  too  soon  to  make  a  reasonable 
forecast  of  the  outcome  of  Seattle's 
latest  experiment  in  municipal  owner- 
ship. Inadequate  financing  was  forced 
upon  the  city  by  reason  of  constitu- 
tional debt  Umitation.  It  must  pay  for 
its  purchase  in  eighteen  years  and  at 
the  same  time  build  up  a  depreciation 
reserve  of  over  twelve  millions,  thus 
placing  an  enormous  burden  upon  its 
street  car  patrons  in  this  generation  in 
order  to  turn  over  to  the  citizens  of 
twenty  years  hence  a  street  railway 
fully  paid  for  and  adequately  main- 
tained. It  is  a  feat  which  no  private 
company  would  undertake.  A  service- 
at-cost  franchise  would  have  called 
only  for  the  payment  of  operation, 
depreciation  and  interest,  and  unless 
there  is  careful  management  the  fares 
may  be  higher  during  this  twenty-year 
period  than  they  might  have  been  un- 
der service  at  cost.  Seattle  has  not  an 
ideal  form  of  government  for  carrying 
on  the  business  of  utility  management, 
yet  its  pubUcly  owned  water-works 
and  electric  light  and  power  plant  have 
been  efl&ciently  managed,  and  the  high- 
class  men  who  are  at  their  heads  as 
superintendents,  have  been  there  many 


,1 


years,  through  many  changing  political 
administrations.  The  civic  spirit  in 
Seattle  is  high  and  I  believe  that  public 
ownership  has  a  better  opportunity 
there  than  in  many  cities  which  have 
more  modern  forms  of  government. 

CAN  PUBLIC  OPERATION  BE  EFFICIENT? 

We  are  inclined  to  base  our  judg- 
ment on  public  ownership  upon  the 
presumption    that    privately    owned 
utilities  are  always  well  managed,  and 
that  the  reverse  is  true  of  all  municipal 
undertakings.    That  this  is  a  fallacy 
any  intelligent  student  who  is  open- 
minded  will  aflfirm.    Many  of  the  mu- 
nicipally owned  utilities  have  passed 
through  this  post-war  period  without 
asking  for  rate  increases  and  are  sol- 
vent.    I  know  of  no  city  which  has 
owned  and  operated  any  utility  for  ten 
years  or  more,  in  which  there  has  not 
been  a  great  saving  to  its  people  by 
reason  of  reduced  rates,  not  only  for  its 
own  service,  but  by  reason  of  its  com- 
petition with  privately  owned  utilities 
which  have  thereby  been  induced  to 
reduce  their  rates.    Municipal  owner- 
ship is  not  often  credited  with  any 
advantage  for  this  reason,  and  yet  I 
can  name  cities  in  which  pubUc  owner- 
ship would  have  been  of  the  greatest 
advantage  even  if  the  publicly  owned 
plant  had  never  turned  a  wheel.    The 
tendency  in  municipal  plants  is  to  pay 
off  and  cancel  funded  debt  obligations; 
that  of  privately  owned  plants  is  to  in- 
crease them.    Under  municipal  owner- 
ship the  chief  incentive  of  operation  is 


to  give  service;  imder  private  owner- 
ship it  is  to  make  profits.    The  tend- 
ency imder  private  ownership  is  to  a 
brand  of  political  activity  that,  in  my 
opinion,  is  infinitely  worse  than  any 
"politics"  that  may  creep  into  man- 
agement under  public  ownership.    The 
people  in  every  city  in  the  state  of 
Washington  will  be  heartily  thankful 
for  any  curtailment  of  the  evil  political 
domination  of  the  state  legislature  by 
the  former  Seattle  traction  interests 
which  results  from  mimicipal  owner- 
ship in  that  fine  city. 

It  is  my  firm  opinion  that  service  at 
cost  is  a  transition  state,  a  temporary 
expedient,  and  one  which  will  be  in  the 
long  run  unsatisfactory  to  both  the 
owners  of  street  railways  and  the  pub- 
lic.   To  the  owners,  it  will  be  just  a 
tightening  of  the  chain  of  public  r^u- 
lation  which  curtails  more  and  more 
their  freedom  of  operation,  but  it  will 
be  sought  in  order  to  fix  a  value  which 
may  form  a  basis  for  public  purchase 
later.      The    voters    will    ultimately 
awaken  to  the  necessity  of  a  better 
form  of  city  government,  in  which  the 
officials  have  more  authority  and  more 
responsibility,  and  of  a  more  lively  in- 
terest in  government  on  their  own  part, 
and  when  these  things  have  been  ac- 
complished, they  will  insist  upon  the 
ownership  of  their  public  utilities  and 
their  operation  on  the  basis  of  the 
greatest  good  to  the  greatest  number, 
and  the  banishment  from  municipal 
life  of  those  evil  forces,  which  have 
done  so  much  to  corrupt  city  govern- 
ment in  America. 


-f 


I 

TECHNICAL  SUPPLEMENTS  of  the 

National  Municipal  Review 

1.  The  Assessment  of  Real  Estate  24  pages 

•     By  LAWSON  PURDY 

For  eleven  years  President,  Dept,  of  Taxes  and  Assessments, 
City  of  New  York 

2.  Administrative  Consolidation  in  State  Governments 

By  A.  E.  BUCK  32  pages 

New  York  Bureau  of  Municipal  Research 

3.  The  Coming  of  Centralized  Purchasing  in  State 

Governments  24  pages 

By  A.  E.  BUCK 

New  York  Bureau  of  Municipal  Research 

4.  A  Correct  Public  Policy  Toward  the  Street  Railway^ 

Problem  24  pages 

A  Report  of  the  National  Municipal  League  Committee  on  Public 
UtiUUes. 

t 

5.  Zoning  32  pages 

By  EDWARD  M.  BASSETT 

Counsel  of  Zoning  Committee  of  the  City  of  New  York;  former 
Chairman  of  Districting  Commission  of  the  City  of  New  York 

6.  Employment  Standardization  in  the  Public  Service 

By  WILLIAM  C.  BEYER  16  pages 

Assistant  Director,  Bureau  of  Municipal  Research  of  Philadelphia 


7.  The  Presidential  Primary 

By  RALPH  S.  BOOTS 

Columbia  University 

8.  The  Law  of  the  City  Plan 

By  FRANK  B.  WILLIAMS 

Counsel  for  American  City  Consultants 


24  pages 


30  pages 


9.  Administrative  Reorganization  in  Illinois 

By  JOHN  M.  MATHEWS  20  pages 

University  of  Illinois 


Prices  of  any  of  these  supplements:  Single  copies,  25  cents 
5  copies,  $1.00  25  copies,  $4.00  100  copies,  $15 


NATIONAL  MUNICIPAL  LEAGUE 


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Date  Due 


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